If you expect annual inflation rate to be 12 percent next year and a one-year T-Notehas...
If you expect annual inflation rate to be 12 percent next year and a one-year T-Notehas an expected annual yield of 7 percent, then real annual rate of interest on the T-Noteis: A) -0.045%B) 5.00% C) 0.955%D) 4.67%E) -4.46%
Answer is supposed to be E. I want to know the steps on how to solve the problem.
Homework Answers
| 1 + nominal interest rate = (1+ real interest rate)*(1+ inflation) | ||||
| nominal interest rate | 0.07 | |||
| Inflation | 0.12 | |||
| (1 + .07) = (1+ real interest rate)*(1+.12) | ||||
| 1 + real interest rate = (1.07)/(1.12) | ||||
| 1 + real interest rate = .955357 | ||||
| real interest rate = .955357 - 1 | ||||
| real interest rate = -.04464 | ||||
| The real annual rate of interest on the T-Note is -4.46%. | ||||
| E) -4.46%. | ||||
Add Answer to:
If you expect annual inflation rate to be 12 percent next year
and a one-year T-Notehas...
You expect inflation over the next year to be 4.6%. Actual inflation over the last year...
You expect inflation over the next year to be 4.6%. Actual inflation over the last year was 0.78%, and the current nominal interest rate is 0.51%. What is your expected real rate of interest (in %)? Round to 0.01%. E.g., if your answer is 3.145%, record it as 3.15.
Suppose the money market annual yield (interest rate) is 1.50%. In the meantime, the one-year inflation...
Suppose the money market annual yield (interest rate) is 1.50%. In the meantime, the one-year inflation rate based on Consumer Price Index (CPI) was 2.0%. If the expected inflation rate remains the same for the next year, what is the expected real interest rate for the money market investment?
If you lend money at a 12% nominal interest rate, but you expect inflation to be...
If you lend money at a 12% nominal interest rate, but you expect inflation to be 7% over the life of the loan, then you expect your purchasing power to grow at a rate of [1%. The real interest rate is negative when the nominal interest rate is If the nominal interest rate is 3% and the expected rate of inflation is 1%, then the real interest rate is ▼| the inflation rate. A. 2%. O B. 096. 3%. 1%....
1) Suppose the real rate is 3.45 percent and the inflation rate is 2.2 percent. What rate would you expect to earn on a Treasury bill?
1) Suppose the real rate is 3.45 percent and the inflation rate is 2.2 percent. What rate would you expect to earn on a Treasury bill?A) 1.25 percentB) 7.75 percentC) 5.73 percentD) 6.56 percentE) 3.30 percent2) The common stock of Dayton Repair sells for $ 47.92 a share. The stock is expected to pay $ 2.28 per share next year when the annual dividend is distributed. The company increases its dividends by 1.65 percent annually. What is the market rate...
e. Suppose most investors expect the inflation rate to be 5% next year, 6% the following...
e. Suppose most investors expect the inflation rate to be 5% next year, 6% the following year, and 8% thereafter. The real risk-free rate is 3%. The maturity risk premium is zero for bonds that mature in 1 year or less and 0.1% for 2-year bonds; then the MRP increases by 0.1% per year thereafter for 20 years, after which it is stable. What is the interest rate on 1-, 10-, and 20-year Treasury bonds? Draw a yield curve with...
The real risk-free rate is 2.5 percent, and inflation is expected to be 2 percent next...
The real risk-free rate is 2.5 percent, and inflation is expected to be 2 percent next year and 3 percent for the following 6 years. Assume that the maturity risk premium is zero. What is the yield on 4-year Treasury securities?
Problem 2-4 (similar to) (Inflation and interest rates) What would you expect the nominal rate of...
Problem 2-4 (similar to) (Inflation and interest rates) What would you expect the nominal rate of interest to be if the real rate is 3.7 percent and the expected inflation rate is 7.1 percent? The nominal rate of interest is %. (Round to two decimal places.)
Suppose you and other investors expect that inflation will be 4% next year, to rise to...
Suppose you and other investors expect that inflation will be 4% next year, to rise to 5% during the following year and then to remain at 4.9% thereafter. Further you expect that the real risk free rate of interest will remain at 2% and the maturity risk premium on treasury securities will rise from .2% for one year bonds. Maturity risk premiums are expected to increase 0.2% for each year to maturity up to a limit of 1.0 percentage point on 5-year...
if the expected inflation rate is 3 percent and if you expect to earn 9 percent...
if the expected inflation rate is 3 percent and if you expect to earn 9 percent nominal return, what is the expected real rate of return on your investment? a. 5.825% b. 12.27% c. 8.33% d. 6.12%
Suppose the annual yield on a two-year Treasury bond is 3.2 percent, the yield on a...
Suppose the annual yield on a two-year Treasury bond is 3.2 percent, the yield on a one-year bond is 2.4 percent, the real risk-free rate of interest or r* is 2 percent, and the maturity risk premium is zero (0). a. Using the expectation theory, forecast the interest rate on a one-year bond during the second year. b. What is the expected inflation rate in Year 1? c. What is the expected inflation rate in Year 2?
If you lend money at a 12% nominal interest rate, but you expect inflation to be 7% over the life of the loan, then you expect your purchasing power to grow at a rate of [1%. The real interest rate is negative when the nominal interest rate is If the nominal interest rate is 3% and the expected rate of inflation is 1%, then the real interest rate is ▼| the inflation rate. A. 2%. O B. 096. 3%. 1%....
e. Suppose most investors expect the inflation rate to be 5% next year, 6% the following year, and 8% thereafter. The real risk-free rate is 3%. The maturity risk premium is zero for bonds that mature in 1 year or less and 0.1% for 2-year bonds; then the MRP increases by 0.1% per year thereafter for 20 years, after which it is stable. What is the interest rate on 1-, 10-, and 20-year Treasury bonds? Draw a yield curve with...
Problem 2-4 (similar to) (Inflation and interest rates) What would you expect the nominal rate of interest to be if the real rate is 3.7 percent and the expected inflation rate is 7.1 percent? The nominal rate of interest is %. (Round to two decimal places.)
Most questions answered within 3 hours.
-
Where is the error in this code sequence?
String s1 = "Hello";
String s2 = "ello";...
asked 11 months ago -
Financial data for Joel de Paris, Inc., for last year
follow:
Joel de Paris, Inc.
Balance...
asked 11 months ago -
Consider this reaction:
Al2(SO4)3 (aq)+ BaCl3
(aq) Al2Cl6 (aq)- +
3BaSO4(s) . What is the...
asked 11 months ago -
Suppose that Savneet is considering increasing her
recent random sample from 20 car rentals to 40...
asked 11 months ago -
Trucks arrive at an unloading terminal at an average rate of 120
per hour.
Trucks arrive...
asked 11 months ago -
Why are methanol and ethanol completely soluble in water while
octanol is not very little soluble....
asked 11 months ago -
A facilities manager at a university reads in a research report
that the mean amount of...
asked 11 months ago -
When the CuSO4 is rehydrated by adding water to the anhydrous
compound, is this an endothermic...
asked 11 months ago -
A ray of sunlight is passing from diamond into crown glass; the
angle of incidence is...
asked 11 months ago -
A block of mass 0.249 kg is placed on top of a light, vertical
spring of...
asked 11 months ago -
how do the kidneys compensate in the presences of acidosis
a) trigger hyperventilate
b) reserve acid...
asked 11 months ago -
Question 501 pts
The rental rate of capital to the firm increases. Which of the
following...
asked 11 months ago