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5. Inflation-indexed and nominal perpetuities (consol bonds), whose coupon payments next period are each S100 are selling for S3,333 and S2,000 respectively. a) What are
5. Inflation-indexed and nominal perpetuities (consol bonds), whose coupon payments next period are each S100 are selling for S3,333 and S2,000 respectively. a) What are the yields of the two bonds? b) Assume that the two bonds have the same expected returns, so that there is no risk premium for holding the nominal perpetuity. Assume that these expected returns are constant over time and also assume that the expected inflation rate is constant over time. What is the expected inflation rate
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