Question 3 (Total marks for this question = 12 marks)

(a) What is the annual headline rate of inflation in Australia for the 2021-2022 financial year? Give a reference in your references list at the end of your assignment. (2 marks)

(b) State the Fisher effect formula. (1 mark)

(c) Explain why the Fisher effect formula works. (3 marks)

(d) Approximate the Fisher effect formula if the rate of inflation is small. (3 marks)

(e) If a 12 month term deposit currently earns 2% per annum interest, what is the real rate of return before tax? Use the annual headline rate of inflation from (a) when calculating the real rate of return. (3 marks)

Thank you!