Answered step by step
Verified Expert Solution
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...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