Solve these 2 practice problems. Info for the 1. INTEREST RATE, r (Percent)16coWhichto be moreO Short-term interest ratesO Long-term interest ratesO 1.87%O 2.20%CAPITAL (Billions of dollars)O 2.53%O 2.75%long-termIf the inflation rate was 3.40% and the nominal interest rate was 5.60% over the last year, what was the real rate of interest over the last year?Disregard cross-product terms; that is, if averaging is required, use the arithmetic average. Round intermediate calculations to four decimal places.S1rates?**Equilibrium The real risk-free rate (r*) is 2.8% and is expected to remain constant. Inflation is expected to be 8% per year for each of the next two years and 7%thereafter.The maturity risk premium (MRP) is determined from the formula: 0.1(t-1) %, where t is the security's maturity. The liquidity premium (LP) on allNational Transmissions Corp.'s bonds is 0.55%. The following table shows the current relationship between bond ratings and default risk premiums(DRP):RatingU.S. TreasuryAAAAAABBBO 5.45%National Transmissions Corp. issues 14-year, AA-rated bonds. What is the yield on one of these bonds? Disregard cross-product terms; that is, ifaveraging is required, use the arithmetic average.O 12.04%O 11.29%Default Risk PremiumO 12.59%0.60%0.80%1.05%1.45%Based on your understanding of the determinants of interest rates, if everything else remains the same, which of the following will be true?O The yield on an AAA-rated bond will be higher than the yield on a BB-rated bond.O Higher inflation expectations increase the nominal interest rate demanded by investors.

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INTEREST RATE, r (Percent) O Short-term interest rates O Long-term interest rates Which tend to be more volatile, short- or long-term interest rates? O O O O O 1.87% O 2.20% S2 CAPITAL (Billions of dollars) If the inflation rate was 3.40% and the nominal interest rate was 5.60% over the last year, what was the real rate of interest over the last year? Disregard cross-product terms; that is, if averaging is required, use the arithmetic average. Round intermediate calculations to four decimal places. O 2.53% O 2.75% $1 + Equilibrium

INTEREST RATE, r (Percent) O Short-term interest rates O Long-term interest rates Which tend to be more volatile, short- or long-term interest rates? O O O O O 1.87% O 2.20% S2 CAPITAL (Billions of dollars) If the inflation rate was 3.40% and the nominal interest rate was 5.60% over the last year, what was the real rate of interest over the last year? Disregard cross-product terms; that is, if averaging is required, use the arithmetic average. Round intermediate calculations to four decimal places. O 2.53% O 2.75% $1 + Equilibrium

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter6: Measuring The Cost Of Living

Section: Chapter Questions

Problem 9PA

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If the inflation rate is 3 percent and the nominal interest rate is 8 percent, how much is the after-tax real interest rate if the government imposes a 20 percent interest income tax? O a. 3.4 percent O b. 4 percent O c. None of the above O d. 5.4 percent.
Using the data in Table 8P - 3 , calculate the CPI and the inflation rate in each year, using 2010 as a base year . [LO 8.2
In 2008 the price index was calculated at 137.9 with 2003 as the base year. In 2009 the price index increased to 148.7. What was the inflation from 2008-2009? O 7.8% O 7.3% O 10.8%
The consumer price index was 100 in 1994 and 103.3 in 1995. Therefore, the rate of inflation in 1995 was about: O 3.3 percent O 2.8 percent O 4.4 percent 1 pts O 6 percent
32. Suppose a person receives a 5% increase in pay when inflation is 4%. In this case, the nominal increase is__________ , the real increase is ____________, If the employee overestimates the real gain, this would be an example of___________. O. 9%, 4%, price confusion O. 5%, 1%, sticky wages O. 5%, 1%, employee misperceptions O. None of the other choices listed is correct. O. 5%, 4%, shoe leather costs 33. It is known that the method used by the BLS to calculate the U3 unemployment rate biases the results, All of the biases tend to cause the reported U3 statistic to be lower than what it really is. O. True O. False
Use Table 8P - 5 to calculate core and headline inflation in each time frame relative to the base year, assuming that each category is weighted equally in the calcula tion of headline inflation . [LO 8.2 , 8.4 a. 2012 to a base year . b . 2016 to a base year . . 2012 to 2016.
1. Suppose you’ll have an annual nominal income of $40,000 for each of the next 3 years, and theinflation rate is 5 percent per year. a. Find the real value of your $40,000 salary for each of the next 3 years. b. Suppose you have a COLA (Cost of Living Adjustment) of 5 percent per year in yourcontract, which raises your $40,000 salary by 5 percent for each of the next 3 years. Giventhe 5 percent inflation rate for each of those 3 years, what is the real value of your salary foreach year?
6. Interest, inflation , and purchasing power Suppose Caroline is a sports fan and buys only baseball caps. Caroline deposits 2000 in a bank account that pays an annual nominal interest rate of 15%. Assume this interest rate is fixed-that is, it won't change over time. At the time of her deposit {comma} a baseball cap is priced at $20. Initially, the purchasing power of Caroline's 2000 deposit is baseball caps. For each of the annual inflationrates given in the following table, first determine the new price of a baseball cap, assuming it rises at the rate of inflation.then enter the corresponding purchasing of Caroline'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:Brown your answers in the first row down to the nearest baseball cap. For example, if you find that the deposit will cover 20.7 baseball caps, you would round to the purchasing power down…
If the real discount rate is 7% and the inflation rate is 10%, Which of the follo ing interest rates ill be sed to find the present orth of a which of the following interest rates will be used to find the present worth of a series of cash flows that are in constant-worth dollars? a. 10.0% b. 17.7% c. 7.0% d. 10.7%.
12. Suppose the inflation rate of a country in 2009 was 13%. If a dress cost $125 at the beginning of the year, how much would it cost at the end of the year?
Your rich aunt is going to give you an end-of-year gift of $1,000 for each of the next 10 years. Solve, a. If general price inflation is expected to average 6% per year during the next 10 years, what is the equivalent value of these gifts at the present time? The real interest rate is 4% per year. b. Suppose that your aunt specified that the annual gifts of $1,000 are to be increased by 6% each year to keep pace with inflation. With a real interest rate of 4% per year, what is the current PW of the gifts?
5. Comparing salaries from different times Consider golfers who led the Professional Golfers' Association of America (PGA) in winnings at different points in time. Note that the winnings are nominal figures (unadjusted for inflation). To convert the original earnings of Casper, Nicklaus, and Kite, use the formula for converting dollar figures from an earlier era into year 2010 U.S. dollars. Using those figures, fill in the following table, making sure to round your responses to the nearest U.S. dollar. Nominal Winnings (Dollars) Year Golfer 1968 Billy Casper 1973 Jack Nicklaus U.S. CPI (1983 = 100) Winnings in 2010 Dollars 34.8 205,169 44.4 308,362 375,699 20,508,163 1981 Tom Kite 2010 Tiger Woods 90.9 224.9 20,508,163 True or False