Fisher Equation: Nominal, Real, and Inflation = 10%. Expected inflation is E(T) = Q1) You lend money to a business colleague at a rate of i 3.5%. What is your real rate of return r? Use the exact Fisher Equation. = Q2) How much would you charge a colleague on a loan of $100 if you want your real rate or return to be r = 6% and the expected inflation is E(л) = 4%. E.g., what is the nominal rate i? Use the exact Fisher Equation. Q3) A corporate bond pays investors both a fixed and variable rate of return. The fixed rate is constitutes the real return which is r = 4.5%. The variable rate is indexed to the CPI and is to compensate investors for inflation. If the expected inflation in the next year is E(T) = 2.5%, what is the nominal rate of return i the company will have to pay? Enter your answer in the table below in the cells colored in yellow. You must show all work to receive credit. Q1) r= |Q2) i= ||Q3) i= Answer
Fisher Equation: Nominal, Real, and Inflation = 10%. Expected inflation is E(T) = Q1) You lend money to a business colleague at a rate of i 3.5%. What is your real rate of return r? Use the exact Fisher Equation. = Q2) How much would you charge a colleague on a loan of $100 if you want your real rate or return to be r = 6% and the expected inflation is E(л) = 4%. E.g., what is the nominal rate i? Use the exact Fisher Equation. Q3) A corporate bond pays investors both a fixed and variable rate of return. The fixed rate is constitutes the real return which is r = 4.5%. The variable rate is indexed to the CPI and is to compensate investors for inflation. If the expected inflation in the next year is E(T) = 2.5%, what is the nominal rate of return i the company will have to pay? Enter your answer in the table below in the cells colored in yellow. You must show all work to receive credit. Q1) r= |Q2) i= ||Q3) i= Answer
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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Transcribed Image Text:Fisher Equation: Nominal, Real, and Inflation
=
10%. Expected inflation is E(T) =
Q1) You lend money to a business colleague at a rate of i
3.5%. What is your real rate of return r? Use the exact Fisher Equation.
=
Q2) How much would you charge a colleague on a loan of $100 if you want your real rate or
return to be r = 6% and the expected inflation is E(л) = 4%. E.g., what is the nominal rate i?
Use the exact Fisher Equation.
Q3) A corporate bond pays investors both a fixed and variable rate of return. The fixed rate is
constitutes the real return which is r = 4.5%. The variable rate is indexed to the CPI and is to
compensate investors for inflation. If the expected inflation in the next year is E(T) = 2.5%,
what is the nominal rate of return i the company will have to pay?
Enter your answer in the table below in the cells colored in yellow.
You must show all work to receive credit.
Q1) r=
|Q2) i=
||Q3) i=
Answer
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