You are trying to estimate the real interest rate for the mining industry products andproceed as follows. You consider buying coal and gold in equal proportion, spending$1000 on coal, and another $1000 on gold in today's dollars. In 4 years from now, theselling values in actual dollars are predicted to be $1,270 (coal) and $1,210 (gold).Inflation (for coal) is 1.1% per year, for the next 4 years. For gold, the gold price indexis predicted to rise in the next 4 years from the current 417 points to 431 points.Compute the estimated real interest rate, as a number, with 0.001 precision.Hint: Calculate real interest rate for the cash flow: 1) invest now $1000+$1000; 2) sellin 4 years coal and gold and obtain appropriate cash flow.

The real interest rate can be defined as a measure of the return on an investment or the cost of…

You are trying to estimate the real interest rate for the mining industry products an proceed as follows. You consider buying coal and gold in equal proportion, spendin $1000 on coal, and another $1000 on gold in today's dollars. In 4 years from now, selling values in actual dollars are predicted to be $1,270 (coal) and $1,210 (gold). nflation (for coal) is 1.1% per year, for the next 4 years. For gold, the gold price ind s predicted to rise in the next 4 years from the current 417 points to 431 points. Compute the estimated real interest rate, as a number, with 0.001 precision. Hint: Calculate real interest rate for the cash flow: 1) invest now $1000+$1000; 2) n 4 years coal and gold and obtain appropriate cash flow.

You are trying to estimate the real interest rate for the mining industry products an proceed as follows. You consider buying coal and gold in equal proportion, spendin $1000 on coal, and another $1000 on gold in today's dollars. In 4 years from now, selling values in actual dollars are predicted to be $1,270 (coal) and $1,210 (gold). nflation (for coal) is 1.1% per year, for the next 4 years. For gold, the gold price ind s predicted to rise in the next 4 years from the current 417 points to 431 points. Compute the estimated real interest rate, as a number, with 0.001 precision. Hint: Calculate real interest rate for the cash flow: 1) invest now $1000+$1000; 2) n 4 years coal and gold and obtain appropriate cash flow.

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter22: Inflation

Section: Chapter Questions

Problem 37P: Rosalie the Retiree knows that when she retires in 16 years, her company will give her a one-time...

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Question

You are trying to estimate the real interest rate for the mining industry products and
proceed as follows. You consider buying coal and gold in equal proportion, spending
$1000 on coal, and another $1000 on gold in today's dollars. In 4 years from now, the
selling values in actual dollars are predicted to be $1,270 (coal) and $1,210 (gold).
Inflation (for coal) is 1.1% per year, for the next 4 years. For gold, the gold price index
is predicted to rise in the next 4 years from the current 417 points to 431 points.
Compute the estimated real interest rate, as a number, with 0.001 precision.
Hint: Calculate real interest rate for the cash flow: 1) invest now $1000+$1000; 2) sell
in 4 years coal and gold and obtain appropriate cash flow.

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