Assume inflation is 0.16% per month. Would you rather earn a nominal return of 0.79% per month, compounded monthly, or a real return of 6.48% APR, compounded annually? (Note: Be careful not to round any intermediate steps less than six decimal places.) The annual rate for the nominal return of 0.79% per month is _____. (Type your answer in decimal format. Round to six decimal places.) Part 2 The nominal annual rate for the real return of 6.48% APR is _____. (Type your answer in decimal format. Round to six decimal places.) Part 3 (Select from the drop-down menus.) Based on a comparison of the two rates and the current inflation rate, you would prefer the (real return or nominal return) option over the (real return or nominal return) option.

Assume inflation is 0.16% per month. Would you rather earn a nominal return of 0.79% per month, compounded monthly, or a real return of 6.48% APR, compounded annually? (Note: Be careful not to round any intermediate steps less than six decimal places.) The annual rate for the nominal return of 0.79% per month is _. (Type your answer in decimal format. Round to six decimal places.) Part 2 The nominal annual rate for the real return of 6.48% APR is _. (Type your answer in decimal format. Round to six decimal places.) Part 3 (Select from the drop-down menus.) Based on a comparison of the two rates and the current inflation rate, you would prefer the (real return or nominal return) option over the (real return or nominal return) option.

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter9: Forecasting Exchange Rates

Section: Chapter Questions

Problem 1ST

See similar textbooks

Similar questions

Define the stated (quoted) or nominal rate INOM as well as the periodic rate IPER. Will the future value be larger or smaller if we compound an initial amount more often than annually—for example, every 6 months, or semiannually—holding the stated interest rate constant? Why? What is the future value of $100 after 5 years under 12% annual compounding? Semiannual compounding? Quarterly compounding? Monthly compounding? Daily compounding? What is the effective annual rate (EAR or EFF%)? What is the EFF% for a nominal rate of 12%, compounded semiannually? Compounded quarterly? Compounded monthly? Compounded daily?
Assume inflation is 0.21% per month. Would you rather earn a nominal return is entered0.72% per month, compounded monthly, or a real return of 6.44% APR, compounded annually? (Note: Be careful not to round any intermediate steps less than six decimal places.) The annual rate for the nominal return 0.72% per month is _______ (Type your answer in decimal format. Round to six decimal places.) Part 2 The nominal annual rate for the real return of 6.44% APR is _____ (Type your answer in decimal format. Round to six decimal places.) (Select from the drop-down menus.) Based on a comparison of the two rates and the current inflation rate, you would prefer the ▼ nominal return compounded monthly real return compounded annually option over the ▼ nominal return compounded monthly real return compounded annually option.
Suppose that you borrow $60,000 at 9% compounded monthly over five years. Knowing that the 9% represents the market interest rate, you compute the monthly payment in actual dollars as $1,245.51. If the average monthly general inflation rate is expected to be 0.25%, determine the equivalent equal monthly payment series in constant dollars.
Suppose that you borrow $42,500 at 11.4%compounded monthly over seven years. Knowingthat the 11.4% represents the market interest rate, yourealize that the monthly payment in actual dollars willbe $736.67. If the average monthly general inflationrate is expected to be 0.6%, determine the equivalentequal monthly payment series in constant dollars.
Suppose that your salary is $45,000 in year one, will increase at 4%per year through year four, and is expressed in actual dollars as follows: If the general price inflation rate (f ) is expected to average 6% per year, what is the real dollar equivalent of these actual-dollar salary amounts? Assume that the base time period is year one (b = 1).
Assume that, for a three year period, the yearly inflation rate is 10% in the firstyear, 12% in the second year and 6% in the third year. During these three years, if the yearlymarket interest rate is 15% compounded monthly, compute the average inflation-free interestrate per quarter for this three year period
Assume the nominal interest rate is 12 percent and the expected rate of inflation is 8 percent. Calculate real rate of interest. Now assume instead that the nominal interest rate is 4 percent and the expected rate of inflation is minus 2 percent. Calculate the real rate of interest. Assume the expected rate of inflation is 6 percent per year. What nominal interest rate should you charge to receive a real interest rate of 2 percent per year?
Suppose the inflation rate is compounded annually at 3% APR. Do you prefer compounded semiannually at 5% APR nominal interest rate or compounded quarterly at 2% real interest rate?
Suppose you invest $1,500 in an account paying 6% interest per year. How much of this balance corresponds to interest on interest earned in the last (7th) period? (Dollar figures should be approximated to the nearest cent of a dollar, while rates should be expressed in percentage terms without using the "%" symbol and approximated to the nearest second decimal place.)
For prices that are increasing at an annual rateof 5% the first year and 8% the second year, determine the average inflation rate ( f ) over the twoyears.
Suppose that an investment promises to pay a real 9% annual rate of interest and inflation rate is 3%. What is the effective annual interest rate on this investment assuming that interest is compounded quarterly? PLEASE SHOW HOW YOU COMPUTE EACH OF THE ITEMS.
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 %…