Suppose a family earned a nominal income of $30,000 per year in 2005 when the CP

Question

Suppose a family earned a nominal income of $30,000 per year in 2005 when the CPI was 150. By 2010, that family's nominal income increased to $60,000 per year, while the CPI increased to 300. The family's 2010 REAL income equaled. Hana paid $106,854.53 for Treasury notes with two years left to maturity with a total principal amount of $100,000 and all with coupon rates of 6% paid annually. With one year before the notes mature (and after receiving the coupon payments for the first year), Hana sells the notes in the open market when Treasury notes with one year left to maturity are yielding 4%. Hana's rounded one-year simple rate of return earned from her purchase of the Treasury notes is equal to %. 0 1 3 2 -1

Explanation / Answer

(30) Correct option (E).

Real income in 2010 = Nominal income in 2010 x (CPI in 2005 / CPI in 2010)

= $60,000 x (150 / 300)

= $60,000 x (1/2)

= $30,000

Note: First question is answered.

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