Compounded inflation The U.S. government reports the rateof inflation (as measured by the Consumer Price Index) bothmonthly and annually. Suppose that for a particular month, themonthly rate of inflation is reported as 0.8%. Assuming that thisrate remains constant, what is the corresponding annual rate ofinflation? Is the annual rate 12 times the monthly rate? Explain.

GIVEN, MONTHLY RATE = 0.8% assume constinoud compounding after t months, yt=y0×ertyt=y0×e0.008t

Answered: Compounded inflation The U.S.…

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter8: Relationships Among Inflation, Interest Rates, And Exchange Rates

Section: Chapter Questions

Problem 4QA

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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 %…
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