(a) A man bought a 8% tax-free municipal bond. It cost $1,000 and will pay $80 interest each year for 10 years. At maturity the bond returns the original $1,000. If there is 5% annual inflation, what real rate of return will the investor receive? (b) An economist has predicted that for the next 5 years, the U.S. will have a 8% annual inflation rate, followed by 5 years at a 5% inflation rate. This is equivalent to what average price change per year for the entire 10-year period?

Question 7 (12 pts). (a) A man bought a 8% tax-free municipal bond. It cost $1,000 and will pay $80 interest each year for 10 years. At maturity the bond returns the original $1,000. If there is 5% annual inflation, what real rate of return will the investor receive? (b) An economist has predicted that for the next 5 years, the U.S. will have a 8% annual inflation rate, followed by 5 years at a 5% inflation rate. This is equivalent to what average price change per year for the entire 10 -year period