Real versus Nominal Rates. You will receive $100 from a savings bond in 3 years. The nominal

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Real versus Nominal Rates. You will receive $100 from a savings bond in 3 years. The nominal interest rate is 8 percent.

a. What is the present value of the proceeds from the bond?

b. If the inflation rate over the next few years is expected to be 3 percent, what will the real value of the $100 payoff be in terms of today’s dollars?

c. What is the real interest rate?

d. Show that the real payoff from the bond (from part

b) discounted at the real interest rate

(from part

c) gives the same present value for the bond as you found in part a.

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Study Guide To Accompany Fundamentals Of Corporate Finance

ISBN: 9780073012421

5th Edition

Authors: Richard Brealey, Stewart Myers, Alan Marcus

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Question Posted: Jun 05, 2024 02:01 AM

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Real versus Nominal Rates. You will receive $100 from a savings bond in 3 years. The nominal

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Study Guide To Accompany Fundamentals Of Corporate Finance

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