You're given two investment options: Bond X: A regular 2-year bond with a coupon rate of 4% per year, payable semi-annually. Its current price is $975. Bond Y: A 2-year real-return bond with a coupon rate of 3% per year, payable annually. Its current price is $980. What is the average annual inflation rate over the next 2 years that would make the nominal rates of return of the two choices the same? Use continuous compounding only
You're given two investment options: Bond X: A regular 2-year bond with a coupon rate of 4% per year, payable semi-annually. Its current price is $975. Bond Y: A 2-year real-return bond with a coupon rate of 3% per year, payable annually. Its current price is $980. What is the average annual inflation rate over the next 2 years that would make the nominal rates of return of the two choices the same? Use continuous compounding only
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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You're given two investment options:
Bond X: A regular 2-year bond with a coupon rate of 4% per year, payable semi-annually. Its current price is $975.
Bond Y: A 2-year real-return bond with a coupon rate of 3% per year, payable annually. Its current price is $980.
What is the average annual inflation rate over the next 2 years that would make the nominal
Use continuous compounding only
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