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

XYZ Municipality purifies water before it enters the reticulation network. There are presently 3 purification processes available to the municipality. These processes sre referred

Prospective Financial Information (forecast and projection) - Forecast: Prospective financial statements which present, to the best of responsible party's knowledge and belief, an

Find the annual reports of the acquiring firm and answer the following questions for the five years before merger took place I)   What information is provided about merger a

LIQUIDATION OF COMPANIES (a) Methods of Winding Up: A company may be wound up:By the court, Voluntarily, either as a members' or a creditors' winding up; or Subject to the s

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

scope of financial accounting

Your firm's research department has estimated the income elasticity of demand for Art Deco lawn furniture to be 1.5. You have just learned that due to an upturn in the economy, con

On May 15, 2010, Your Corporation acquired an airplane (5 year recovery period, 6 year class life) for $1,450,000. Its qualified business use is 54%. Determine the maximum cost rec