Question

Consider the following spot interest rates for maturities of one, two, three, and four years. r1 = 4.4% r2 = 4.9% r3 = 5.6% r4 = 6.4% Assuming a constant real interest rate of 2 percent, what are the approximate expected inflation rates for the next four years? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)

Answer 1

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BOND - Microsoft Excel (Product Activation Failed) Add-Ins View - 2x Dr General File Home Insert Page Layout Formulas Data Review % Cut Calibri -11AA = = = Ea Copy Paste BI U Format Painter D- DA E E E Clipboard Font Wrap Text FMerce Merge & Center - Center m Find & s $ % % , 4.0 .00 :.: Insert Delete Format Conditional Format Formatting as Table Styles Cell Styles Σ AutoSum : A Fill 2 Sort & 2 Clear Filter Editing Select Alignment Number Cells JQ R S T U V W X Y Formula Bar KA KB K C KDE 32 33 34 35 36 37 38 39 40 41 r1 = r2 = r3= r4 = 4.40% 4.90% 5.60% 6.40% 43 r1 = E(r1) = 4.40% expected inflation rate in year 1 = E(R1) -r* = 4.40% -2% = 2.40% 47 E(R2) = (1+r)^2/(1+r1) - 1 (1+0.049)^2/(1+0.044) - 1 5.40% 49 50 51 52 expected inflation rate in year 2 = E(r2) - r* = 5.40% -2% = 3.40% ► Sheet2 AFN BANKING NOTE 51 53 CLEAN PRICE S10 BIDDING, UNDERWRITING EUAC AW LIFE LP, IP, MRP, INFLATIONWARRANT refund S5 O YIELD SPOT 1 ferences S4 BO S6 OC 120% I 1 Rea + DOER 9 * ENG 23-11-2019)

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