3. Assume that the economy has an annual inflation rate of 5 percent. Are the followinginvestments profitable in real terms?(a) A $1,000 face-value bond, which you purchase at a 30% discount, that pays a monthly coupon of $4. (b) A $1 million house the increases in price by $45,000 per year. You do not rent outthe house, nor do you undertake renovations. (c) A $1 million house that you renovate for $45,000 over the course of a year, causingthe price to increase to $1.1 million.
3. Assume that the economy has an annual inflation rate of 5 percent. Are the followinginvestments profitable in real terms?(a) A $1,000 face-value bond, which you purchase at a 30% discount, that pays a monthly coupon of $4. (b) A $1 million house the increases in price by $45,000 per year. You do not rent outthe house, nor do you undertake renovations. (c) A $1 million house that you renovate for $45,000 over the course of a year, causingthe price to increase to $1.1 million.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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3. Assume that the economy has an annual inflation rate of 5 percent. Are the following
investments profitable in real terms?
(a) A $1,000 face-value bond, which you purchase at a 30% discount, that pays a monthly coupon of $4.
(b) A $1 million house the increases in price by $45,000 per year. You do not rent out
the house, nor do you undertake renovations.
(c) A $1 million house that you renovate for $45,000 over the course of a year, causing
the price to increase to $1.1 million.
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