10.56 Predicting T-bill return.

Figure 10.16 (page 514) uses statistical software to predict the return on Treasury bills in a year when the inflation rate is 2.25%. Let’s do this without specialized software. Figure 10.10 (page 499) contains Excel regression output. Use a calculator or software to find the variance of the annual inflation rates in Table 10.1 (page 498). From this information, find the 95% prediction interval for one year’s T-bill return. Check your result against the software output in Figure 10.16.