Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Chapter 5, Problem 2PS
The real interest rate approximately equals the nominal raie minus the inflation rate. Suppose the inflation rate increases from 3% to 5%. Does the Fisher equation imply that this increase will result in a fall in the real rate of interest? Explain. (LO 5-4)
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The Fisher equation tells us that the real interest rate approximately equals the nominal rate minus the inflation rate. Suppose the inflation rate increases from 3% to 5%. Does the Fisher equation imply that this increase will result in a fall in the real rate of interest? Explain.
Assume inflation is 2.60% and the nominal (annual) interest rate is 6.35%. If the interest rate is held constant, but inflation rises to 5.25%, does it cost more or less in real terms to borrow money than when the inflation rate was 2.60%? Explain your answer and make sure to include your real interest rates in both situation.
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Chapter 5 Solutions
Essentials Of Investments
Ch. 5 - Prob. 1PSCh. 5 - The real interest rate approximately equals the...Ch. 5 - When estimating a Sharpe ratio, would it make...Ch. 5 - You’ve just decided upon your capital allocation...Ch. 5 - Prob. 5PSCh. 5 - The stock of Business Adventures sells for $40 a...Ch. 5 - Prob. 7PSCh. 5 - a. Suppose you forecast that the standard...Ch. 5 - Using the historical risk premiums as your guide,...Ch. 5 - What has been the historical average real rate of...
Ch. 5 - Consider a risky portfolio. The end-of-year cash...Ch. 5 - For Problems 12-16, assume that you manage a risky...Ch. 5 - For Problems 12-16, assume that you manage a risky...Ch. 5 - For Problems 12-16, assume that you manage a risky...Ch. 5 - For Problems 12-16, assume that you manage a risky...Ch. 5 - For Problems 12-16, assume that you manage a risky...Ch. 5 - Prob. 17PSCh. 5 - You manage an equity fund with an expected risk...Ch. 5 - What is the reward-to--volatility (Sharpe) ratio...Ch. 5 - A portfolio of nondividend-paying stocks earned a...Ch. 5 - Which of the following statements about the...Ch. 5 - Which of the following statements reflects the...Ch. 5 - Use the following data in answering CFA Questions...Ch. 5 - Prob. 5CPCh. 5 - Lise the following data in answerifng CFA Question...Ch. 5 - Use the following scenario analysis for stocks X...Ch. 5 - Prob. 8CPCh. 5 - Use the following scenario analysis for stocks X...Ch. 5 - 10. Probabilities for three states of the economy...Ch. 5 - 11. An analyst estimates that a stock has the...Ch. 5 - Prob. 1WMCh. 5 - Prob. 2WMCh. 5 - Prob. 3WM
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- If Treasury bills are currently paying 3.05 percent and the inflation rate is 1.89 percent, what is the approximate real rate of interest? The exact real rate? Can the calculator and excel solution be provided?arrow_forwardWhat would you expect the nominal rate of interest to be if the real rate is 5.3 percent and the expected inflation rate is 2.8 percent?arrow_forwardAccording to the fisher equation, if the real rate of interest is 2.5% and the nominal rate of interest is 5.3%, the rate of inflation is forecast to be approximately 7.8% 2.7% 5.3% 2.8% Please show me all the work to find the answer. Thank you.arrow_forward
- What would you expect the nominal rate of interest to be if the real rate is 4.2% and the expected inflation rate is 7.2%?arrow_forwardIf we require a 5% real return and we expect inflation to be 2%, what is the nominal rate of interest?arrow_forwardWhat is the real interest rate given a nominal rate of 8.7% and an inflation rate of 1.5%? A. 11.3% B. 8.5% C. 7.1% D. 9.9%arrow_forward
- Please answer quickly and correctly Suppose that the general inflation rate is 3% and the real interest rate is 5%. Find the market interest (aka combined) rate (%, to the nearest hundredth).arrow_forwardThis morning, you observe in the markets that the nominal interest rate is 6%, which includes inflation expectations of 4%. If inflation expectations go up by 1% and nominal interest rates go up by 1.5%, what is the resulting real interest rate?arrow_forwardThe risk-free rate on T-bills recently was 1.23%. If the real rate of interest is estimated to be 0.80%, what was the expected level of inflation?arrow_forward
- Assume inflation is 2.60% and the nominal (annual) interest rate is 6.35%. If the interest rate is held constant, but inflation rises to 5.25%, does it cost more or less in real terms to borrow money than when the inflation rate was 2.60%? Explain your answer and make sure to include your real interest rates in both situations to earn full credit.arrow_forwardSuppose that the nominal rate of interest is 5% and the expectedrate of inflation is 2%. Whats is the expected real rate ofinterest according to Fisher? Calculate the after-tax expected realrate of assuming a 30% marginal tax rate. If inflation expectationsincrease by 2%, what will be the new nominal rate according tofisher? According to darby/feldstein? What should happen to bondprices and stock prices if the expected rate of inflationincreasearrow_forwardWhat will the money rate of interest have to be at a 6% inflation rate to entice people to keep the same proportion of their assets in the form of money as they would if prices were stable. assuming the real rate of interest was 5% and not impacted by inflation?arrow_forward
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