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PLEASE SHOW ALL WORK. THANKS! Q1) You lend money to a business colleague at a rate of i=10%. Expected inflation is E()= 3.5%. What is
PLEASE SHOW ALL WORK. THANKS!
Q1) You lend money to a business colleague at a rate of i=10%. Expected inflation is E()= 3.5%. What is your real rate of return r ? Use the exact Fisher Equation. Q2) How much would you charge a colleague on a loan of $100 if you want your real rate or return to be r=6% and the expected inflation is E()=4%. E.g., what is the nominal rate i ? Use the exact Fisher Equation. Q3) A corporate bond pays investors both a fixed and variable rate of return. The fixed rate is constitutes the real return which is r=4.5%. The variable rate is indexed to the CPI and is to compensate investors for inflation. If the expected inflation in the next year is E()=2.5%, what is the nominal rate of return i the company will have to pay? Enter your answer in the table below in the cells colored in yellow. You must show all work to receive credit
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