Suppose 1-year T-bills currently yield 7.00% and the future inflation rate is expected to be constant at 2.00% per year. What is the real risk-free rate of return, r*? The cross-product term should be considered , i.e., if averaging is required, use the geometric average. (Round your final answer to 2 decimal places.)
A. 4.51%
B. 4.85%
C. 4.90%
D. 3.87%
E. 3.77%
Answer: C
Business
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