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- The inflation rate is expected to be 8% per year into the foreseeable future. How many years will it take for the peso's purchasing power to be one-half of what it is now?If the average annual inflation rate is 3.1%,how long will it take for the CPI index to double? (A doubling of the CPI index means purchasing power is cut in half.)If inflation averages 4 percent per year, how much purchasing power will$1.00 lose in 10 years?
- Suppose that $1,000 is deposited each year for five years into an equity (common stock) account earning 8% per year. During this period, general inflation is expected to remain at 3% per year. At the end of five years, what is the dollar value of the account in terms of today’s purchasing power (i.e., real dollars)?An investment had a nominal return of 11.8 percent last year. If the real return on the investment was only 8.7 percent, what was the inflation rate for the year?If the velocity of circulation is constant, real GDP is growing at 3 percent a year, the real interest rate is 2 percent a year, and the nominal interest rate is 7 percent a year, calculate the inflation rate, the growth rate of money, and the growth rate of nominal GDP.
- 1, Consider the following table for an eight-year period: Year T-bill return Inflation 1 7.47% 8.53% 2 8.94 12.16 3 6.05 6.76 4 5.97 5.04 5 5.63 6.52 6 8.54 8.84 7 10.74 13.11 8 13.00 12.34 a, Calculate the average return for Treasury bills and the average annual inflation rate (consumer price index) for this period. b, Calculate the standard deviation of Treasury bill returns and inflation over this time period. c, Calculate the real return for each year. d, What is the average real return for Treasury bills?If the inflation rate is expected to be 3% for the next 10 years, what annual income will be needed 10 years from now in order to have the same purchasing power as $25,000 today?A series of five payments in constant dollars, beginning with $6,000 at the end ofthe first year, are increasing at the rate of 5% per year. Assume that the averagegeneral inflation rate is 4%, and the market interest rate is 11% during this inflationary period. What is the equivalent present worth of the series?(a) $24,259 (b) $25,892(c) $27,211 (d) $29,406
- Suppose that deflation occurs in the U.S. economy and that the CPI (as a measure of f ) is expected to decrease an average of 2%per year for the next five years. A bond with a face (par) value of $10,000 and a life of five years (i.e., it will be redeemed in five years) pays an interest (bond) rate of 5% per year. The interest is paid to the owner of the bond once each year. If an investor expects a real rate of return of 4% per year, what is the maximum amount that should be paid now for this bond?If the inflation rate is 5.55% compounded annually, how long will it take for prices to double?Suppose we have the following Treasury bill returns and inflation rates over an eight year period: Year Treasury Bills Inflation 1 10.45% 12.55% 2 11.36 16.00 3 9.06 10.29 4 8.34 7.97 5 8.88 10.29 6 11.23 12.77 7 14.11 16.98 8 15.97 16.90 a. Calculate the average return for Treasury bills and the average annual inflation rate for this period. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) Treasury bills % Inflation % b. Calculate the standard deviation of Treasury bill returns and inflation over this period. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) Treasury bills % Inflation %…