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You will recieve $100 from a savings bond in 3 years. The nominal interest rate is 8%. a) What is the present value of the
You will recieve $100 from a savings bond in 3 years. The nominal interest rate is 8%.
a) What is the present value of the proceeds from the bond?
b) If the inflation rate over the next few years is expected to be 3%, what will the real value of the $100 payoff be in terms of today's dollars?
c) What is the real interest rate?
d) Show that the real payoff from the bond in part (b), discounted at the real interst rate in part (c) givers the same present value for the bond as you found in part(a).
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