You would like to invest $30,000 for a year in a risk-free investment. A conventional certificate of deposit (CD) offers a 4.6% annual rate of return. You are also considering an "Inflation-Plus" CD which offers a real rate of return of 1.6% regardless of the inflation rate. a. What is the implied (expected) inflation rate? (Round your answer to 2 decimal places.) Implied inflation rate % b. You decide to invest $15,000 in the conventional CD and $15,000 in the "Inflation-Plus" CD. What is your expected dollar value at the end of the year? Expected value

You would like to invest $30,000 for a year in a risk-free investment. A conventional certificate of deposit (CD) offers a 4.6% annual rate of return. You are also considering an "Inflation-Plus" CD which offers a real rate of return of 1.6% regardless of the inflation rate. a. What is the implied (expected) inflation rate? (Round your answer to 2 decimal places.) Implied inflation rate % b. You decide to invest $15,000 in the conventional CD and $15,000 in the "Inflation-Plus" CD. What is your expected dollar value at the end of the year? Expected value

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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What should be the value of a Bankers' Acceptance with a $100,000 face value and 79 days until maturity quoted on a discount basis yielding 1.8935% with the current inflation rate of 2.2972? Consider the same question above assuming a $250,000 face value and 279 days until maturity quoted on a discount basis yielding .8935% with the current inflation rate of 1.467?
Current interest rates are i$ = 4%;i€ = 6%. Expected interest rates next year are: i$ = 7%;i € = 3%. The expected spot rate in two years is S2($/€) = 1. Use the asset market approach to compute the current spot rate S0($/€). Please type in the number without the currency signs. For example, if your answer is $1.25/€, then type in 1.25 as your final answer. Please keep at least three decimal places (up to 5 decimal places)
4
Assuming away any risk differential of investing in a two-year security for two years or a on-year security followed by another one-year security during year two, we can calculate the one-year interest rate expected by market investors next year For example, if a two-year security offers an annual interest rate of 6% for each of two years and a one-year security offers an annual interest rate of 5%, the one year rate one year from today impounded in the two-year rate must be 7%. In other words, if an investor in a two-year security earns 65 for each of two years, the investor will earn 12% over the two year period -- assuming away the affect of compounding (interest on Interest) Since we are assuming a strategy of investing in a one-year instrument followed by another one-year instrument is equal in risk to investing in a two-year instrument for two years, the average annual return of the two sequential one-year securities must also sum to 12%. Given that a one-year security currently…
Finance The practice of investing in a currency that offers the higher return on a covered basis is known as covered interest arbitrage. Currently, the six month Euro Libor rate is -0.52% per annum, and the six month TR libor rate is 18.06% per annum. If the spot rate is 8.5013TRY per Euro and the forward rates are as stated below, Forward Points EURTRY 1M FWD 1003 EURTRY 3M FWD 3411 EURTRY 6M FWD 7096 EURTRY 1Y FWD 14507 a) What is 6M Forward rate for euro? b) Do you have a covered interest arbitrage opportunity? c) If yes, how? d) How much is the arbitrage amount you can enjoy if you can borrow upto 1 million euros or its equivalent Turkish Lira?
Suppose you want to detemine the forward rates for your client, a lender who is considering a Forward Rate Ageement (FRA). You have collected and organized the data for the risk-free zero interest rates with continuous compounding in the following table: Maturity(years) Zero Rate (% per annum) 1 2 3 4 2 3 5 6 5 What is the forward rate for the fourth year? (sample answer: 2.50%) Blank 1 What is the forward rate for the fifth year? (sample answer: 2.50%) Blank 2 7
The two-year interest rate is 10.4%, and the expected annual inflation rate is 5.2%. a. What is the expected real interest rate? b-1. If the expected rate of inflation suddenly rises to 7.2%, what does Fisher's theory say about how the real interest rate will change? b-2. If the expected rate of inflation suddenly rises to 7.2%, what will be the new nominal rate? Complete this question by entering your answers in the tabs below. Req A Req B1 Req B2 What is the expected real interest rate? Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Expected real interest rate %
If we require a 10% real return and we expect inflation to be 7%. Calculate the nominal rate of interest using the fisher effect equation and it's approximation. What is the difference between the two? Respuesta:
After a 1 year investment you receive 7.5% interest (nominal) from your bank. However, looking at how prices have changed, you soon realize that the real rate of interest was actually 1.6%. How much was inflation during that year? Enter your answer as a percentage, rounded to 2 decimals, and without the percentage sign ('%'). For example, if your answer is 0.02345, then enter 2.35
A European call that will expire in one year is currently trading for $3. Assume the risk-free rate (based on continuous compounding) is 5%, the underlying stock price is $60 and the strike price is $55. a. Is there an arbitrage opportunity? b. Describe exactly what a trader should do to take advantage of the arbitrage opportunity assuming it exists. c. Determine the present value of the profit that the trader can earn assuming you identify an arbitrage opportunity. Use at least four decimal places for those questions that require a numerical answer.
Subject:- finance
Optimizing economic agents use the real interest rate when thinking about the economic costs and returns of a loan. Suppose the average rate paid by banks on savings accounts is 0.45% at a time when infialion is around 0 9% For the average saver, the real rate of interest on his or her savings is % (Round your response to two decimal places and use a minus sign if necessay.) Il banks expect that the rate of inflation in the coming year will be 3.9% and they want a real return of 8% on a certain category of loans, then the nominal rate they should charge borrowers on those loans is %. (Round your response to two decimal places) 11 the economy experiences an unexpectedly high rate of inflation, the group that would tend to benefit is O A. creditors (people or institutions that are owed money). O B. deblors (pcople or businesses who owe moncy). OC. both would benefit cgqually O D. neilher bencfits.

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