Find out the constant nominal interest rate, Financial Accounting

You decide to invest 1000 in a 5-year Treasury Inflation protected bond that each year offers a return of -1.5% plus the rate of inflation. You assume 1-year inflation rates over the next five years of (1.5%, 2%, 2.5%, 2.75%, 3%). This means that the rate of return in the first year is zero.

a. What is the total value of your investment in five years?

b. What is the constant nominal interest rate that would lead to the same value in five years?

c. How would your answers to a. and b. change if inflation is higher than you expected?


Posted Date: 3/6/2013 2:57:04 AM | Location : United States

Related Discussions:- Find out the constant nominal interest rate, Assignment Help, Ask Question on Find out the constant nominal interest rate, Get Answer, Expert's Help, Find out the constant nominal interest rate Discussions

Write discussion on Find out the constant nominal interest rate
Your posts are moderated
Related Questions
Mr. Wong currently running a small manufacturing business.  The Trial Balance of the business at 31 March 2011 is as follows:

Illustration of Bankruptcy Njuguna Mwandawiro, carrying on a business as a trader in Likoni, Mombasa, finds himself insolvent, and on 15 August 1997 files his petition in bankr

"Government departments should take audit report seriously by preparing annual financial statement on time".... Based on the above statement, suggest ways on how government depa

Valuing Callable Bonds: Bowdeen Manufacturing intends to issue callable, perpetual bonds with annual coupon payments. The bonds are callable at $1,350. One-year interest rates

Change in profit sharing ratio When there is a change in profit sharing ratio, it means that some of the partners will get higher profits based on the new ratios in the future wh

By classifying by function Under this format, the expenses of the company are classified into 5 major categories i.e. Cost of sales [(opening stock + purchases – closing st

SF is a division of, an internet retailer. SF operates two large server farms, each of which is a set of interconnected computers and hard drives that are used to process

Q. What do you mean by Fiscal Year? Fiscal Year - Period of 12 consecutive months chosen by an entity as its ACCOUNTING period that may or may not be a calendar year. Fixed Ass

Q. What is Short Sale? Short Sale - Sale of an item before it is purchased. A person entering into a short sale believes that the price of item will decline between date of the

sale of 430 to ramdas were credited in his account 340