Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

You are trying to estimate the real interest rate for the mining industry products and proceed as follows. You consider buying coal and gold

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 4 years from now, the selling values in actual dollars are predicted to be $1,255 (coal) and $1,265 (gold). Inflation (for coal) is 1.1% per year, for the next 4 years. For gold, the gold price index is predicted to rise in the next 4 years from the current 416 points to 435 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 4 years coal and gold and obtain appropriate cash flow.

Step by Step Solution

3.34 Rating (148 Votes )

There are 3 Steps involved in it

Step: 1

To calculate the estimated real interest rate we need to compare the initial investment in today... blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Reporting Financial Statement Analysis And Valuation A Strategic Perspective

Authors: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

9th Edition

1337614689, 1337614688, 9781337668262, 978-1337614689

More Books

Students also viewed these Accounting questions

Question

Why do companies use policies, procedures, and rules?

Answered: 1 week ago