You would like to invest $15,000 for a year in a risk-free investment. A conventional certificate of deposit (CD) offers a 5.2% annual rate of return. You are also considering an Inflation-Plus CD which offers a real rate of return of 2.4% regardless of the inflation rate.

a.	What is the implied (expected) inflation rate? (Round your answer to 2 decimal places.)

Implied inflation rate

%

b.	You decide to invest $7,500 in the conventional and $7,500 in the Inflation-Plus CD. What is your expected dollar value at the end of the year?

Expected value

$

c.

Which of the two CDs is a better investment if the actual inflation rate for the year turns out to be 2.4%?

	Inflation-Plus CD turns out to be a better investment.
	Conventional CD turns out to be a better investment.