Question
Hy Marks buys a one-year government bond on January 1, 2011, for $500. He receives principle plus interest totaling $515 on January 1, 2012. Suppose
Hy Marks buys a one-year government bond on January 1, 2011, for $500. He receives principle plus interest totaling $515 on January 1, 2012. Suppose that the CPI is 200 on January 1, 2011, and 206 on January 1, 2012. This increase in prices is different than Hy had anticipated; his guess was that the CPI would be at 201 by the beginning of 2012.
(1) Calculate the nominal interest rate and round your answer in percentage points to one decimal place.
(2) Calculate the actual inflation rate and round your answer in percentage points to one decimal place.
(3) Calculate the real interest rate and round your answer in percentage points to one decimal place.
(4) Calculate Hy's expected inflation rate and round your answer in percentage points to one decimal place.
(5) Calculate Hy's expected real interest rate and round your answer in percentage points to one decimal place.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started