1. Suppose the real rate is 3.0 percent and the inflation rate is 4.6 percent. W
ID: 2642615 • Letter: 1
Question
1.
Suppose the real rate is 3.0 percent and the inflation rate is 4.6 percent.
What rate would you expect to see on a Treasury bill?
2.
Backwater Corp. has 8 percent coupon bonds making annual payments with a YTM of 7.5 percent. The current yield on these bonds is 7.85 percent.
How many years do these bonds have left until they mature?
3.
Ninja Co. issued 12-year bonds a year ago at a coupon rate of 7.2 percent. The bonds make semiannual payments. If the YTM on these bonds is 5.5 percent, what is the current bond price?
4.
A Japanese company has a bond outstanding that sells for 86 percent of its
Suppose the real rate is 3.0 percent and the inflation rate is 4.6 percent.
Explanation / Answer
Answer:
Using the formula:
(1 + nominal rate) = (1 + real interest rate) (1 + inflation rate)
(1+nominal rate ) = (1+0.03) (1+0.046)
Nominal Rate = 7.74%
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