r 1 = 5.2% r 2 = 5.6% r 3 = 6.3% r 4 = 7.1% Assuming a constant real interest ra

Question

           r1 = 5.2%    r2 = 5.6%     r3 = 6.3%     r4 = 7.1%

Assuming a constant real interest rate of 2 percent, what are the approximate expected inflation rates for the next four years? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Omit the "%" sign in your response.)

I1 %

  I2 %

  I3 %

   I4 %
hint Use the Fisher hypothesis and the unbiased expectations theory.

Consider the following spot interest rates for maturities of one, two, three, and four years.

           r1 = 5.2%    r2 = 5.6%     r3 = 6.3%     r4 = 7.1%

Assuming a constant real interest rate of 2 percent, what are the approximate expected inflation rates for the next four years? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Omit the "%" sign in your response.)

I1 %

  I2 %

  I3 %

   I4 %
hint Use the Fisher hypothesis and the unbiased expectations theory.

Explanation / Answer

1)

I1 = (1+r1)/(1+real Interest Rate)-1

I1 = (1+5.2%)/(1+2%)-1

I1 = 3.14%

2)

I2 = (1+r2)^2/((1+real Interest Rate)^2)-1

I2 = (1+5.6%)^2/ ((1+5.2%)*(1+2%))-1

I2 = 3.92%

3)

I3 = (1+r3)^3/((1+r2)^2*(1+real Interest Rate))-1

I3 = (1+6.3%)^3/ ((1+5.6%)^2*(1+2%))-1

I3 = 5.60%

4)

I4 = (1+r3)/((1+r2)*(1+real Interest Rate))-1

I4 = (1+7.1%)^4/ ((1+6.3%)^3*(1+2%))-1

I4 = 7.39%

Related Questions

Navigate

• Browse (All)
• Browse R
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.