Suppose the real risk-free rate is 3.50% and the future rate of inflation is expected to be constant at 4.80%. what rate of return would you expect on a 1-year treasury security, assuming the pure expectations theory is valid?

8.30%

Explanation:

The formula to compute the expected rate of return is shown below:

= Real risk-free rate + future rate of inflation + default risk premium + liquidity risk premium + maturity risk premium

= 3.50% + 4.80% + 0 + 0 + 0

= 8.30%

We simply added the real risk-free rate and the future rate of inflation so that the correct rate of return can come

We consider all the information which is given in the question as it is relevant for the computation part

the correct answer is economics is a game without winners or losers.

unlike sports or games economic is a game without losers or winner rather it is a game where everyone wins. parties of business doing businesses exchange money with each other and hence exchange is done on the basis of goods. one party takes the goods and other sales it so there is winner on both sides. each party values more highly the good it gets than the good it gives up. both sides exchange only because both intend to increase their value. so there is no concept of lose or win.