Calculate two price indicates, one using year 1 as the base year (set equal to 100) and the other using the year 4 as the base year (set equal to 100).
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The total
year 1 - P940
year 2 - P970
year 3 - P1,000
year 4 - P1,070
Calculate two price indicates, one using year 1 as the base year (set equal to 100) and the other using the year 4 as the base year (set equal to 100).
NOTE: Explain and support the answer with calculations.
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- Suppose you take out a loan at your local bank. The bank expects to earn an annual real interest rate equal to 33%. Assuming that the annualized expected rate of inflation over the life of the loan is 11%, determine the nominal interest rate that the bank will charge you.Please explain and provide the calculation for the real interest rate for both the situationsSuppose you purchase a $1,500 TIPS on January 1, 2020. The bond carries a fixed coupon rate of 5.5 percent. Over the first two years, semiannual inflation is 1.5 percent, 1.5 percent, 4 percent, and 3 percent, respectively. What is the principal at the end of month 6?
- The following represents the inflation rates of foreign country X for the past 5 years: Year 1: 35% Year 2: 20% Year 3: 25% Year 4: 30% Year 5: 15% Which statement is correct about the selection of a functional currency for country X at the end of year 5. a. Country X is highly inflationary; the US dollar must be used b. Country X is highly inflationary; the foreign currency must be used c. Country X is not highly inflationary; the US dollar must be used d. Country X is not highly inflationary; either the US dollar or the foreign currency may be used depending on the factors to determine the functional currency e. Country X is not highly inflationary; the foreign currency must be usedSuppose you want to earn a real interest rate of 5%. For inflation rates of 0.0, 1.0, 2.0, …, 9.0, 10.0, 15.0, 20.0, and 50.0%, determine the combined rate of interest you must earn.If the expected real interest rate of 5% and expected inflation rate of 3%, then the nominal interest rate in year t is approximately
- What are the benefits of inflation indexation in fixed income products? Why is it important for retirees? What is the cost for having inflation indexation as a product feature?For a given real interest rate, a decrease in the inflation rate would a. increase the after-tax real interest rate and so decrease saving. b. decrease the after-tax real interest rate and so decrease saving. c. decrease the after-tax real interest rate and so increase saving. d. increase the after-tax real interest rate and so increase saving.The total price of purchasing a basket of goods in the United Kingdom over four years is: year 1 = £940; year 2 = £970; year 3 = £1000; and year 4 = £1070. Calculate two price indices, one using year 1 as the base year (set equal to 100) and the other using year 4 as the base year (set equal to 100). Then calculate the inflation rate based on the first price index. If you had used the other price index, would you get a different inflation rate? Do the calculations to support your answer.
- Assume that you borrow $5,000, and you pay back the $5,000 plus $250 in interest at the end of the year. Assuming no inflation, what is the real interest rate? What would the interest rate be if the $250 of interest had been discounted at the time the loan was made? What would the interest rate be if you were required to repay the loan in 12 equal monthly installments?Suppose Cho is a cinephile and buys only movie tickets. Cho deposits $3,000 in a bank account that pays an annual nominal interest rate of 10%. Assume this interest rate is fixed—that is, it won't change over time. At the time of her deposit, a movie ticket is priced at $15.00. For each of the annual inflation rates given in the following table, first determine the new price of a movie ticket, assuming it rises at the rate of inflation. Then enter the corresponding purchasing power of Cho's deposit after one year in the first row of the table for each inflation rate. Finally, enter the value for the real interest rate at each of the given inflation rates. Hint: Round your answers in the first row down to the nearest movie ticket. For example, if you find that the deposit will cover 20.7 movie tickets, you would round the purchasing power down to 20 movie tickets under the assumption that Cho will not buy seven-tenths of a movie ticket. Number of tickets Cho can purchase options:…Suppose Cho is a cinephile and buys only movie tickets. Cho deposits $3,000 in a bank account that pays an annual nominal interest rate of 10%. Assume this interest rate is fixed—that is, it won't change over time. At the time of her deposit, a movie ticket is priced at $15.00. For each of the annual inflation rates given in the following table, first determine the new price of a movie ticket, assuming it rises at the rate of inflation. Then enter the corresponding purchasing power of Cho's deposit after one year in the first row of the table for each inflation rate. Finally, enter the value for the real interest rate at each of the given inflation rates. Hint: Round your answers in the first row down to the nearest movie ticket. For example, if you find that the deposit will cover 20.7 movie tickets, you would round the purchasing power down to 20 movie tickets under the assumption that Cho will not buy seven-tenths of a movie ticket. Fill in the annual inflation chart Choices…
