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1. Someone offers you the following deal. They will pay you $5000 in two years if you agree to pay them $4500 today. If you
1. Someone offers you the following deal. They will pay you $5000 in two years if you agree to pay them $4500 today. If you accept the deal, what is your rate of return?
a. 0.0731 | |
b. 0.0541 | |
c. 0.1111 | |
d. 0.0342 |
2. Suppose the present value of $524 paid at the end of one year is $495. What is the one-year discount rate?
a. 0.0553 | |
b. 0.0586 | |
c. 0.0943 | |
d. 0.2525 | |
e. 0.1437 |
3. Why may investors buy a Treasury bill with a negative real interest rate?
a. concern about high yields on other bonds | |
b. concern about the high default risk of alternative investments | |
c. fear of default by the US government | |
d. fear of rising inflation |
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