1.

The Treasury just sold a bunch of 5-year, zero coupon $100 face-value bonds for an interest rate (r_rf) of 6.0%. If r_inf is 2.0% at the time of the sale, then jumps to 3.0% the next day, what is (approximately) r_rf of the bonds on the next day? Assume nothing changes overnight except for the jump in the inflation rate. Hint: Assume r_rf = r_inf + all other treasury bond interest rate risks.

Also, yesterday, you bought a 5-year, zero coupon, $100 face-value Treasury bond with an interest rate (r_rf) of 6.0% and a price of $74.73 per bond. r_inf was 2.0% at the time, but jumped to 4.0% overnight. Nothing changed overnight except for the jump in the inflation rate. How much can you sell your bond for today? Hint: Assume r_rf = r_inf + all other treasury bond interest rate risks.

Do not round intermediate calculations.