Question: Security A B C D E Consider the following information: Time to maturity Inflationary (years) expectation 3 6% 5 5.5 6 5 7 4.8

Security A B C D E Consider the following information: Time to maturity Inflationary (years) expectation 3 6% 5 5.5 6 5 7 4.8 10 6 Risk premium 4% 5 2 3 6 a. Suppose the rate of return on 3-month Treasury bills is 4%, and the 3-month ex- pected inflation rate is 2%. What is the real return? b. Based on your result in part a, what is the nominal rate of return of each security? c. Why is the inflationary expectation for each security different?

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