as highlighted by the press article that appeared on BNN, on Oct 19, 2022. Canadas inflation rate came in stronger than expected in September despite lower gasoline prices, with stickier underlying pressures likely to keep the Bank of Canada on an aggressive rate-hiking path. The consumer price index was up 6.9 per cent from a year ago, higher than economist predictions for a 6.7 per cent gain, Statistics Canada reported Wednesday in Ottawa. The data caused traders to shift bets toward a larger rate hike next week, with markets now pricing in a 60 per cent chance of a 75-basis-point increase from the Bank of Canada.

A. Based on the inflation data and investors expectation, would you expect the prices of bonds to increase or decrease?

B. a 75-basis-point increase from the Bank of Canada. That would take the benchmark overnight lending rate to 4 per cent, where it hasnt been since early 2008. How will this increase in the overnight rate affect the overall level of interest rates and rates on mortgages? Is there an impact?

C. If the current nominal rate of interest (r) of 5.83% and the anticipated rate of inflation is, what is the real rate of interest (R)? (use the exact formula not the approximation)