Welma wants to buy an elephant but she does not currently have the 14,000 required to buy the type of elephant she wants.

1. If she hopes to buy the elephant at this same price in three years, how much does she need to invest in 5% annually compounding T-bills at this moment in time to have enough money in three years?

2. Assume that in three years elephants now cost $16,000. If elephants are good representations of current inflationary pressures. What is the effective yearly real rate of return on the T-bills?