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You purchase a security that promises a 10 percent rate of return. You believe that the real rate of return will be 7 percent.

You purchase a security that promises a 10 percent rate of return. You believe that the real rate of return will be 7 percent. The pure rate in the market is 1.5 percent. Use exact formulation What is your forecast for the inflation rate? What is the risk premium for this security? What is the risk-free rate?

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Solution To find the forecast inflation rate we can use the Fisher equation i r where i is the inflation rate r is the real rate of return and is the ... blur-text-image

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