Principles Of Managerial Finance, Student Value Edition (14th Edition)
Principles Of Managerial Finance, Student Value Edition (14th Edition)
14th Edition
ISBN: 9780133508000
Author: Lawrence J. Gitman, Chad J. Zutter
Publisher: PEARSON
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Chapter 6, Problem 6.4WUE

Assume that the rate of inflation expected over the coming year is 3.3%. Explain how a 1-year T-bill could earn a negative real rate of return over the next year. How could it have a zero real rate of return? What minimum rate of return must the T-bill earn to meet your requirement of a 2% real rate of return?

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a) You invest 155 000 TL for a year. At the end the year, you have 174 375 TL net in your account. If the inflation realizes at %10 fot this year, calculate real rate of return? Can real interest rates be negative? Give a simple example?
If you are promised a nominal return of 16%, on a one-year investment, and you expect the rate of inflation to be 2%, what real rate do you expect to earn?  Use the Fisher equation, NOT the approximation.
Suppose 1-year T-bills currently yield 7.40% and the future inflation rate is expected to be constant at 3.00% per year. What is the real risk-free rate of return, r*? Disregard any cross-product terms, i.e., if averaging is required, use the arithmetic average.   a. 4.40%     b. 7.40%     c. 10.40%     d. 7.62%     e. 5.20%

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Principles Of Managerial Finance, Student Value Edition (14th Edition)

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