Homework Answers
| 20) | |||||
| Growing annuities are a series of payments that grow at | |||||
| a CONSTANT rate. | |||||
| 1 + nominal interest rate = (1+ real interest rate)*(1+ inflation) | |||||
| Nominal interest rate = .1060 | |||||
| inflation = .0525. | |||||
| (1+.1060) = (1+real interest rate)*(1+.0525) | |||||
| 1.1060 = (1+real interest rate)*(1.0525) | |||||
| (1 + real interest rate) = 1.1060/1.0525 | |||||
| (1+real interest rate) = 1.050831 | |||||
| real interest rate = .050831. | |||||
| The expected real rate of return | |||||
| 5.08%. | |||||
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