The approximate and exact real rate Introduction: Nominal rate refers to the rate of return on a bond instrument before adjusting the inflation rate. Real rate refers to the rate of return on a bond instrument after adjusting the inflation rate. The Fisher effect helps to establish a relationship between the nominal rate of return, inflation, and the real rate of return.

Question

Want to see the full answer?

Answer 1

Question

Chapter 6, Problem 9QP

Summary Introduction

To determine: The approximate and exact real rate

Introduction:

Nominal rate refers to the rate of return on a bond instrument before adjusting the inflation rate. Real rate refers to the rate of return on a bond instrument after adjusting the inflation rate. The Fisher effect helps to establish a relationship between the nominal rate of return, inflation, and the real rate of return.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Students have asked these similar questions

A commercial real estate investment fund must report its quarterly investment performance to investors. A summary of its (1) beginning and end-of-quarter assets and equity and (2) cash inflows and outflows during the quarter are as follows: Beginning of Quarter During Quarter $64 million Cash $10 million NOI from operations $514 million Market value of props $2 million Paid management fees $34 million Other Investments $25 million Distributions to investors $328 million Fund debt $214 million Investor contributions $189 million Property acquisitions $39 million Property dispositions The other investments will earn 4 percent interest (1 percent per quarter) and fund debt will be at a 6 percent rate (1.5 percent per quarter). The properties were appraised at the end of the quarter for $669 million. Assume any interest on short-term investments is offset by interest paid on short-term debt. Required: What would be the beginning equity value? What would be the…

The Green Mortgage Company has originated a pool containing 75 ten-year fixed interest rate mortgages with an average balance of $103,200 each. All mortgages in the pool carry a coupon of 12 percent. (For simplicity, assume that all mortgage payments are made annually at 12 percent interest.) Green would now like to sell the pool to FNMA. Required: Assuming a constant annual prepayment rate of 10 percent (for simplicity, assume that prepayments are based on the pool balance at the end of each year), what would be the price that Green should obtain on the date of issuance if market interest rates were (1) 11 percent? (2) 12 percent? (3) 9 percent? Assume that five years have passed since the date in (a). What will the pool factor be? If market interest rates are 12 percent, what price can Green obtain then? Instead of selling the pool of mortgages in (a), Green decides to securitize the mortgages by issuing 100 pass-through securities. The coupon rate will be 11.5 percent and the…

Chewy, Inc. gas a gross profit of $500,000 and $140,000 in depreciation expense. Selling and administrative expense is $80,000. Given that the tax rate is 30 percent, compute the cash flow for the firm.