Answer: approximately the nominal risk-free rate reduced by the expected inflation rate.

The approximate relationship between nominal rates, real rates and expected inflation rates can be written as: Nominal risk-free rate = real risk-free rate + expected inflation rate. Therefore we can rewrite this equation in terms of the real risk-free rate as: Real risk-free rate = Nominal risk-free rate – expected inflation rate The exact relation is: (1 + real)(1 + expected inflation) = (1 + nominal) (Module 1.1, LOS 1.a)

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