CFIN -STUDENT EDITION-W/ACCESS >CUSTOM<
6th Edition
ISBN: 9780357753118
Author: BESLEY
Publisher: CENGAGE C
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Chapter 5, Problem 12PROB
Summary Introduction
Risk free rate:
Interest rate which has no risk of loss. For risk free rate risk is zero.
Calculate the forward risk free rate as follows:
Given one year inflation rate is 1.4%, year two inflation rate is 1.8% and 2% after year 2. Assume the real risk free rate is 3%.
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3 years ago, you invested $6,700. In 5 years, you expect to have $12,201. If you expect to earn the same annual return after 5 years from today as the annual return implied from the past and expected values given in the problem, then in how many years from today do you expect to have $25,254?
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