How long would it take for the price level to double if inflation persisted at: (a) 2 percent per year, (b) 5 percent per year, (c) 10 percent per year?
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- What is the uninflated present worth of a P 200,000 future value in two years if the average inflation rate is 6% and interest rate is 10%?You are planning to save for retirement over the next 30 years. To save for retirement, you will invest $1,200 a month in a stock account in real dollars and $545 a month in a bond account in real dollars. The effective annual return of the stock account is expected to be 11 percent and the bond account will earn 7 percent. When you retire, you will combine your money into an account with an effective annual return of 8 percent. The inflation rate over this period is expected to be an effective annual rate of 4 percent. a. How much can you withdraw each month from your account in real terms assuming a withdrawal period of 25 years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What is the nominal dollar amount of your last withdrawal? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)In a certain foreign country in 2009, the local currency (the ‘Real’) was pegged to the U.S. dollar at the rate of $1 U.S. = 1 Real. The Real was then devalued over the next five years so that $1 U.S. = 2 Real. A bank in the north-eastern United States bought assets in this country valued at 100 million Real in 2009. Now that it is year 2014, what is the worth of this bank’s investment in U.S.dollars? Should the bank sell out of its investment in this foreign country or should it buy more assets?
- In wisely planning for your retirement, you invest $27,000 per year for 20 years into a 401K tax-deferred account. Assume you make a real return of 10% per year when the inflation rate averages 2.6% per year. How much will you be able to withdraw each year for 18 years, starting one year after your last deposit? The amount that you will be able to withdraw each year is $Your firm is based in the UK, just received USD 825,000 from a customer in the U.S., and wants to convert the USD to GBP. The bank is quoting a spot rate of GBP/USD 1.2283 - 1.2425. How much will you receive in British pounds (GBP)? A. GBP 1,013,348 B. GBP 663,984 C. GBP 671,660 D. GBP 1,025,063Assume that 3 year Treasury note has no maturity premium and that the risk free rate is 5 percent. If the t note carries a nominal risk free rate of return of 13 percent and If the expected average inflation rate over the next 2 years is 9 percent. What is the expected inflation rate in year3. a. 9 b. 6 c. 12 d. 18 e. 7
- Suppose you collect old coins. Today you have two coins, each of which is valued at $100. One coin is expected to increase in value by 5.6 percent annually, while the other coin is expected to increase in value by 4.8 percent annually. What will be the difference in the value of the two coins 25 years from now?1.All would indicate that hyperinflation exists, except a. The general population regards monetary amounts in terms of relatively stable foreign currency. b. The cumulative inflation rate over three years is approaching or exceeds 100%. c. Inflation rates have exceeded interest rates in three successive years. d. The general population prefers to keep its wealth in nonmonetary assets. 2. Purchasing power gain or loss results from a. Monetary asset only b. Monetary liability only c. Both monetary asset and monetary liability d. Nonmonetary assets and nonmonetary liability 3. During a period of deflation, an entity would have the greatest gain in general purchasing power by holding a. Cash b. Property, plant, and equipment c. Finance lease liability d. Mortgage payableIf your portfolio expected annual average total return was 10% and long-term inflation was about 3%, what would your REAL average annual returns be with a 100% equity portfolio? 10% 7% 3% 5% If you put your retirement funds in a savings account earning 0.5% and inflation was 3%, how much would you lose in value each year against inflation by not earning more than inflation on your retirement savings? 0.5% less 3% for minus 2.5% 3% 0.5% 10.2%
- The 5 yr swap rate is the rate that can be earned over five years from a series of short term loans to AA rated companies True FalsAssume that it is January 1, 2003. The rate of inflation is expected to be 4 percent thought 2003. However, increased government deficits and renewed vigor in the economy are then expected to push information rates higher. Investors expect the inflation rate to be 5 percent in 2004, 6 per percent cent in 2005, and 7 percent in 2006. The real risk-free rate, k*, is expected to remain at 2 percent over the next 5years. Assume that on maturity risk premiums are required on bonds with 5 years of less to maturity. The current interest rate on 5 year T-bonds is 8 Percent. What is the average expected inflation rate over the next 4 year? What should be the prevailing interest rate on 4-year T-bond? What is the implied expected inflation rate in 2007, or Year 5, give that Treasury bonds which mature in the year yield 8 percent?The total amount of money in an account with P dollars invested in it is given by the formula A=P+PrtA=P+Prt, where r is the rate expressed as a decimal and t is time (in years).If $552$552 is invested at 9%9%, how much money will be in the account after 2121 months? Round your answer to two decimal places if necessary.