Mr. Robert has $300,000 deposited in a bank account. The current real interest rate is 4.78% and the expected inflation is 3.42% over the next year.

1. How much will Mr. Robert have at the end of the first year? *

4 points

A. $314,340.00

B. $304,080.00

C. $324,600.00

D. $310,260.00

E. None of the above

2. Assume that Mr. Robert is planning to purchase a house a year from now. The current price of the house is $315,000. Will he be able to purchase it? *

6 points

A. No, since the price of the house will be more than the amount he saved by $1,173

B. Yes, since the price of the house will be less than the amount he saved by $1,173

C. No, since the price of the house will be more than the amount he saved by $11,433

D. Yes, since the price of the house will be less than the amount he saved by $11,433

E. None of the above

Part 1: Mr. Andrew has just purchased an 7% coupon bond with a face value of $1,000 that matures in 4 years. He paid $1,060 for this purchase.

1. If he wants to earn a 8% rate of return on his investment, and plans on holding the bond for 1 year, at what price must he sell the bond? *

4 points

A. $985.62

B. $1074.8

C. $1,150.2

D. $1,090.6

E. None of the above

Part 2: Mr. Ralph has purchased a coupon bond with a face value of $3,000 that matures in 4 years. He paid $2,962 at t=0 and sold it for $3,072 after 1 year. He realized a rate of return of 9%.

1. What is the bond's coupon rate? *

4 points

A. 4.96%

B. 14.88%

C. 5.22%

D. 15.66%

E. None of the above

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