You will receive $100 from a savings bond in 4 years. The nominal interest rate is 7.90%. a) What is the present value of the proceeds from the bond? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. b)If the inflation rate over the next few years is expected to be 2.90%, what will the real value of the $100 payoff be in terms of today's dollars? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. c)What is the real interest rate? Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. d)Calculate the real payoff from the bond [from part (b)] discounted at the real interest rate [ from part (c)]. Note: Do not round intermediate calculations. Round your answer to 2 decimal places.

You will receive $100 from a savings bond in 4 years. The nominal interest rate is 7.90%. a) What is the present value of the proceeds from the bond? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. b)If the inflation rate over the next few years is expected to be 2.90%, what will the real value of the $100 payoff be in terms of today's dollars? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. c)What is the real interest rate? Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. d)Calculate the real payoff from the bond [from part (b)] discounted at the real interest rate [ from part (c)]. Note: Do not round intermediate calculations. Round your answer to 2 decimal places.

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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Today is the 10th January 2023. You want to buy a Floating Rate Note (FRN) that matures on the 10th July 2027 and pays an annual coupon equal to LIBOR. Compute the fair price of the note. Use the data in Table 1. The LIBOR rate at selected dates are showed in Table 3. Please show your calculations. Discuss your result. Rates are continuously compounded- see attached image
Assume that a three-year treasury note (T - note) has no maturity premium, and that the real risk - free rate of interest is 5 percent. If the T - note varries a nominal risk rate of return of 13 perent and if the expected average infaltion rate over the next two years is 9 percent, what is the implied expected inflation rate during Year 3 ?
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