You will receive $100 from a zero-coupon savings bond in 3 years. The nominal interest rate is 7.80%.
a. What is the present value of the proceeds from the bond? (Do
not round intermediate calculations. Round your answer to 2 decimal
places.)
Present Value:
b. If the inflation rate over the next few years is expected to be
2.80%, what will the real value of the $100 payoff be in terms of
today’s dollars? (Do not round intermediate calculations. Round
your answer to 2 decimal places.)
Real Value:
c. What is the real interest rate? (Do not round intermediate
calculations. Enter your answer as a percent rounded to 2 decimal
places.)
Real Interest Rate (In percent):
d. Show that the real payoff from the bond [from part (b)]
discounted at the real interest rate [from part (c)] gives the same
present value for the bond as you found in part (a). (Do not round
intermediate calculations. Round your answer to 2 decimal
places.)
Present Value:
1.
=Future Value/(1+nominal rate)^t
=100/1.078^3
=79.825880
2.
=Future Value/(1+inflation rate)^t
=100/1.028^3
=92.04933514
3.
=(1+nominal rate)/(1+inflation rate)-1
=1.078/1.028-1
=4.86%
4.
=92.04933514/(1+1.078/1.028-1)^3
=79.825880
You will receive $100 from a zero-coupon savings bond in 3 years. The nominal interest rate...
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