Question
The following annual inflation rates have been forecast for the next 3 years: Year 1 2.5% Year 2 3.0% Year 3 4.0% The 1-year nominal
The following annual inflation rates have been forecast for the next 3 years:
| Year 1 | 2.5% |
| Year 2 | 3.0% |
| Year 3 | 4.0% |
- The 1-year nominal rate of interest is estimated to be 3.77%. According to the Fisher Effect and the inflation rates provided above, what is the current 1-year real rate of interest?
(2 Points)
Real rate of interest = (1.0377/1.025) 1 = 1.24%
- The 3-year real nominal rate of interest is estimated to be 4.75%. According to the Fisher Effect and the inflation rates provided above, what is the current 3-year real rate of interest (in annual basis)?
The 3-year real nominal rate of interest is estimated to be 4.75%. According to the Fisher Effect and the inflation rates provided above, what is the current 3-year real rate of interest (in annual basis)?
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Investments An Introduction
Authors: Herbert B Mayo
10th Edition
0538452099, 9780538452090
