Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Question 4 25 pts You are trying to estimate the real interest rate for the mining industry products and proceed as follows. You consider buying
Question 4 25 pts You are trying to estimate the real interest rate for the mining industry products and proceed as follows. You consider buying coal and gold in equal proportion, spending $1000 on coal, and another $1000 on gold in today's dollars. In 6 years from now, the selling values in actual dollars are predicted to be $1,279 (coal) and $1,235 (gold). Inflation (for coal) is 1.7% per year, for the next 6 years. For gold, the gold price index is predicted to rise in the next 6 years from the current 416 points to 427 points. Compute the estimated real interest rate, as a number, with 0.001 precision. Hint: Calculate real interest rate for the cash flow: 1) invest now $1000+$1000; 2) sell in 6 years coal and gold and obtain appropriate cash flow. Question 4 25 pts You are trying to estimate the real interest rate for the mining industry products and proceed as follows. You consider buying coal and gold in equal proportion, spending $1000 on coal, and another $1000 on gold in today's dollars. In 6 years from now, the selling values in actual dollars are predicted to be $1,279 (coal) and $1,235 (gold). Inflation (for coal) is 1.7% per year, for the next 6 years. For gold, the gold price index is predicted to rise in the next 6 years from the current 416 points to 427 points. Compute the estimated real interest rate, as a number, with 0.001 precision. Hint: Calculate real interest rate for the cash flow: 1) invest now $1000+$1000; 2) sell in 6 years coal and gold and obtain appropriate cash flow
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