ANSWER:- Change = (Actual rate of inflation - expected rate of inflation)
(6.2 - 3)= 3.2%
If the expected rate of inflation was 3% and the actual rate was 6.2%; the systematic...
6. The Fisher effect and the cost of unexpected inflation Suppose the nominal interest rate on savings accounts is 11% per year, and both actual and expected inflation are equal to 5%. Complete the first row of the table by filling in the expected real interest rate and the actual real interest rate before any change in the money supply. Now suppose the Fed unexpectedly increases the growth rate of the money supply, causing the inflation rate to rise unexpectedly from 5% to...
Maturity Risk Premium The real risk-free rate is 3%, and inflation is expected to be 2% for the next 2 years. A 2-year Treasury security yields 6.2%. What is the maturity risk premium for the 2-year security?
The expected real rate of interest is 0.6%, actual inflation over the last year was 3%, and expected inflation over the next year is 7.4%. What is the current level of nominal interest rates (in %) predicted by the Fisher equation? Round to 0.01%. E.g., if your answer is 3.145%, record it as 3.15.
Suppose the nominal interest rate equals 9%, the expected inflation rate is 5%, and actual inflation turns out to be 3%. In this case, the: a. ex ante real interest rate is 4%. b. ex post real interest rate is 4%. C. ex ante real interest rate is 6%. d. ex post real interest rate is 2%
Question 37 (1 point) Which inflation cost matters even if actual inflation and expected inflation are the same? losses in real income production costs losses in tax revenue menu costs Question 38 (1 point) You put money in an account that earns 8 percent. The inflation rate is 4 percent, and your marginal tax rate is 10 percent. What is your after-tax real rate of interest? 3.3 percent 3.2 percent 1.0 percent 3.4 percent
Suppose that velocity of money is constant, the expected inflation rate is equal to the actual inflation rate, and the expected real interest rate is 4%. Answer the following questions. Justify your answers. Does the quantity theory allow for money to be used for assets and risk diversification purposes? When the growth rate of money supply is 7% and the growth rate of real GDP is 3%, what is the nominal interest rate? Let the growth rate of money supply...
Ch 02: Assignment - Risk and Return: Part 1 Term Answer Risk A Expected rate of return B Description The rate of return expected to be realized from an investment, calculated as the mean of the probability distribution of its possible returns. The term applied to the risk of an asset that is measured by the standard deviation of the asset's expected returns. The possibility that an actual outcome will be better or worse than its expected outcome The general...
The real risk-free rate is 3.0% and inflation is expected to be 2.25% for the next 2 years. A 2-year Treasury security yields 6.05%. What is the maturity risk premium for the 2-year security? Round your answer to one decimal place.
The real risk-free rate is 3.0% and inflation is expected to be 2.25% for the next 2 years. A 2-year Treasury security yields 6.15%. What is the maturity risk premium for the 2-year security? Round your answer to one decimal place.
Suppose the real risk-free rate is 1.50% and the future rate of inflation is expected to be constant at 2.30%. What rate of return would you expect on a 1-year Treasury security, assuming the pure expectations theory is valid? Disregard cross-product terms, i.e., if averaging is required, use the arithmetic average?