2ND QUESTION.

3RD QUESTION, Thank you

The observed nominal interest rate is a sum of the real interest rate and the expected inflation rate. Assume that the real rate is 2% for all maturities. If the nominal rate on 1-year T-bond is 5% and that on 2-year T-bond is 7%, estimate the nominal rate on 1-year bond during the second year. You are trying to save to buy a new $20,000 speedboat to take to the lake. You have $4,317.85 today that can be invested at your bank. The bank pays 7% annual interest on its accounts. How long will you have to wait? You are offered an investment that requires you to put up $8,000 today in exchanged for $14,000 eight years from now. What is the rate of return on this investment