1. The nominal interest rate on a one-year Treasury security is 2.14%. If the expected inflation rate for the next year is 1.4%, what is the expected real rate of return in the economy based on the Fisher Effect?
2. You expect the real rate of return in the U.S. to be 2.8% over the next year and the inflation rate to be 2.2%. According to the Fisher Effect, what is the expected nominal rate of interest in the U.S. for a one-year risk-free security?
3. The yield curve for Lower L-land shows the rates on 1-year, 2-year, 3-year, and 4-year securities are 4%, 4.5%, 5%, and 5.25%, respectively. Using PET, calculate:
A) The expected one-year rate in one year B) The expected two-year rate in one year C) The expected three-year rate in one year D) The expected two-year rate in two years