Question 10.50

10.50 T-bills and inflation.

Figure 10.16 (page 514) gives part of a regression analysis of the data in Table 10.1 relating the return on Treasury bills to the rate of inflation. The output includes prediction of the T-bill return when the inflation rate is 2.25%.

  1. Use the output to give a 90% confidence interval for the mean return on T-bills in all years having 2.25% inflation.
  2. You think that next year’s inflation rate will be 2.25%. It isn’t possible, without complicated arithmetic, to give a 90% prediction interval for next year’s T-bill return based on the output displayed. Why not?