Question

In April 2019, the nominal interest rate on the one-year Treasury bill was 2.34%. From April 2019 to April 2020, the consumer price index rose from 254.9 to 255.9. If you bought the one-year Treasury bill in April 2019, the interest rate you earned over the following 12-month period was X%. (Enter your answer rounded to two decimal places and include a minus sign if necessary.)

Answer 1

As per the information provided in the question

The nominal interest rate on one year treasury bill was (i)=2.34%=0.0234

The CPI increased from period (April 2019 to April 2020) is 254.9 to 255.9

So the rate of inflation (f)={(CPIn+1 –CPIn)/CPIn}x100 = {(255.9 – 254.9)/254.9}x100=0.3923% =0.003923

Real interest rate (r) = (i-f)/(1+f) = (0.0234-0.003923)/(1+0.003923) = 0.019477/1.003923=0.01940089

Real interest rate (r)= 1.940089% or Approx 1.94%   (Answered to 2 decimal place)

The interest rate earned over the 12 month period is 1.94%