Calculate the real expected interest rate

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Reference no: EM13850480

1. Suppose you purchase a 1 year security discount bond with face value of $1000 fir $950 today. Calculate the yield of this bond.

2. Suppose you expect the inflation rate to be 3.5% over the course of the year. Calculate the purchasing power of the face value you expect to receive at maturity.

3. Calculate the real expected interest rate.

4. Suppose the actual inflation rate was 2%, calculate the actual purchasing power of the face value at maturity and the realized real interest rate.

Reference no: EM13850480

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