Question
Part 1) Linda just sold all the shares of company A stock that she owned for $156/share. She purchased the stock one year ago for
Part 1) Linda just sold all the shares of company A stock that she owned for $156/share. She purchased the stock one year ago for $150/share. Over the year, she received $1/share in dividend. Calculate the return on her investment.
Part 2) The interest rate on one-year Treasury-bond is 0.4%, the rate on two-year Treasury bond is 0.8%, the rate on three-year T-bond is 1.1%.
a. Compute the expected interest rate in the second year (year 2)
b. Compute the expected interest rate in the third year (year 3).
Part 3) The expected inflation rate for the next three years are estimated: 2.5% for 2020, 3.5% for 2021, and 4.2% for 2022. Calculate the inflation premiums (IP) for 1-year bond, for 2-year bond and 3- year bond.
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