6) [10 points] The data below presents the goods and services purchased by consumers in year one and year two. Haircuts Books Pizzas Quantity in year 1 5 20 40 Quantity in year 2 10 15 30 Price in year 1 $10 $20 $15 Price in year 2 $12 $18 $20 a) Calculate the consumer price index in both years and the inflation rate between year 1 and year 2 (assume that year 1 is the base year). b) Does this measure of inflation over or under-estimate the likely change in the true cost of living? In no more than 5 words, provide one reason for your answer. Answer: 7) [10 points] Suppose the U.S. Treasury sells a bond with a three-year maturity, a principal of $100, and a coupon rate of 15%. A Cambridge bank buys this bond. If the bank manager decides to sell the bond after one year (after it receives the first coupon payment), when the market interest rate is 10%, what is the most she can expect to get for the bond