Question

22, 23

Suppose the real rate is 10.5 percent and the inflation rate is 1.6 percent. What rate would you expect to see on a Treasury bill? Multiple Choice Ο 11.04% Ο 10.43% Ο 12.27% Ο 13.49%

Answer 1

Solution :- (1)

Real Interest Rate ( RIR )= 10.5%

Inflation Rate ( IR ) = 1.6%

Now to Find Nominal Interest Rate ( NIR ) =

= ( 1 + NIR ) = ( 1 + RIR )* ( 1 + IR )

= ( 1 + NIR ) = ( 1 + 0.105 ) * ( 1 + 0.016 )

= ( 1 + NIR ) = ( 1.1227 )

NIR = 1.1227 - 1 = 0.1227 = 12.27%

Therefore Correct Answer is (C) that is 12.27%

Solution :- (2)

1 Solution :- (2) Years Cashflows ($11,365) $6,100 $5,600 $6,200 2 3 26.62% IRR(B4:B7) 11

Therefore the correct answer is (A) that is 26.62%

if there is any doubt please ask in comments and please give rate

Answer 2

The answer is C.