Homework Answers
Nominal rate of interest = real rate of interest + inflation rate
=> Nominal rate of interest = 8% + 3% = 11%
Therefore, the interest of 11% should be charged to make a real return of 8%.
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You want to make an 8% real return on a loan that you are planning to...
help please with all parts 9. Suppose you are a lender and have a real interest...
help please with all parts
9. Suppose you are a lender and have a real interest rate in mind of 5% (or in other words, your required after- inflation rate of retum from making a loan is 5%) and you expect inflation to be 1% over the coming year. Use the approximate Fisher equation to answer this a. What nominal or market interest rate will you charge? Show your calculations en re b. Suppose you lend money at the interest...
2.You borrowed $1,500 for one year, and agreed to pay back $1,680. At the outset you...
2.You borrowed $1,500 for one year, and agreed to pay back $1,680. At the outset you expected the inflation rate to be 2% over the period of the loan, but it ended at 4%. In this case, Question options: the nominal interest rate was 1.12%, the expected real interest rate was 2%, the actual real interest rate ended at 4%. the nominal interest rate was 12%, the expected real interest rate was 14%, the actual real interest rate was 16%....
Suppose that Bank of America is making a loan to Peter at an annual real interest...
Suppose that Bank of America is making a loan to Peter at an annual real interest rate of 7.5%. If it expects the rate of inflation during the loan period to be 2%, what interest rate (specified in the loan contract) will Bank of America charge Peter? If the actual inflation during the loan period turns out to be only 0.5%, will Peter be worse off or better off?
5) A banker must earn at least a 3.5% return after expected inflation on short term...
5) A banker must earn at least a 3.5% return after expected inflation on short term loans. The inflation rate for the past 6 months has averaged 4.3%. The expected inflation rate for the next twelve months is 4.7%. Nominal interest rates for short term loans were 6.7% last month. What is the minimum nominal interest rate that he should charge for a one year loan?
7. The difference between nominal Gross Domestic Product and real Gross Domestic Product a.is that nominal...
7. The difference between nominal Gross Domestic Product and real Gross Domestic Product a.is that nominal Gross Domestic Product includes only the values of final goods and services, while real Gross Domestic Product includes the values of both final and intermediate goods and services. b. is that real Gross Domestic Product includes the value of all goods sold in the country (whenever they were produced) during the period, while nominal Gross Domestic Product includes the value of all goods produced...
tag2 155 Which of the following lending agreements represents the highest real rate of return for...
tag2 155 Which of the following lending agreements represents the highest real rate of return for a bank when it lends its money to a customer? a nominal interest rate of 6% with 10% inflation a nominal interest rate of 8% with 1% inflation O a nominal interest rate of 10% with 5% inflation a nominal interest rate of 19% with 13% inflation
You are planning to save for retirement over the next 30 years. To save for retirement,...
You are planning to save for retirement over the next 30 years. To save for retirement, you will invest $1,600 per month in a stock account in real dollars and $585 per month in a bond account in real dollars. The effective annual return of the stock account is expected to be 11 percent, and the bond account will earn 7 percent. When you retire, you will combine your money into an account with an effective return of 9 percent....
Show step by step process to answer each of the following. Correct Answers: 7)4.50% 8) 3.632%...
Show step by step process to answer each of the following.
Correct Answers:
7)4.50%
8) 3.632%
9)5.56%
(7-7) You are considering the purchase of a coupon bond that has a face value of $1,000, pays 3.80% semi-annual coupons, and matures in 8 years. If this bond is currently selling for $953.41, estimate its yield-to-maturity (YTM). (7-8) Currently, the nominal rate prevailing in the market is 7%. If inflation is expected to be 3.25%, estimate the actual real interest rate. (7-9)...
You are planning to save for retirement over the next 30 years. To save for retirement,...
You are planning to save for retirement over the next 30 years. To save for retirement, you will invest $1,900 per month in a stock account in real dollars and $615 per month in a bond account in real dollars. The effective annual return of the stock account is expected to be 12 percent, and the bond account will earn 7 percent. When you retire, you will combine your money into an account with an effective return of 8 percent....
Q3) A bank is planning to make a loan of $5,000,000 to a firm in the...
Q3) A bank is planning to make a loan of $5,000,000 to a firm in the steel industry. It expects to charge a servicing fee of 50 basis points. The loan has a maturity of 8 years with a duration of 7.5 years. The cost of funds (the RAROC benchmark) for the bank is 10 percent. The bank has estimated the maximum change in the risk premium on the steel manufacturing sector to be approximately 4.2 percent, based on two...
help please with all parts
9. Suppose you are a lender and have a real interest rate in mind of 5% (or in other words, your required after- inflation rate of retum from making a loan is 5%) and you expect inflation to be 1% over the coming year. Use the approximate Fisher equation to answer this a. What nominal or market interest rate will you charge? Show your calculations en re b. Suppose you lend money at the interest...
Suppose that Bank of America is making a loan to Peter at an annual real interest rate of 7.5%. If it expects the rate of inflation during the loan period to be 2%, what interest rate (specified in the loan contract) will Bank of America charge Peter? If the actual inflation during the loan period turns out to be only 0.5%, will Peter be worse off or better off?
tag2 155 Which of the following lending agreements represents the highest real rate of return for a bank when it lends its money to a customer? a nominal interest rate of 6% with 10% inflation a nominal interest rate of 8% with 1% inflation O a nominal interest rate of 10% with 5% inflation a nominal interest rate of 19% with 13% inflation
Show step by step process to answer each of the following.
Correct Answers:
7)4.50%
8) 3.632%
9)5.56%
(7-7) You are considering the purchase of a coupon bond that has a face value of $1,000, pays 3.80% semi-annual coupons, and matures in 8 years. If this bond is currently selling for $953.41, estimate its yield-to-maturity (YTM). (7-8) Currently, the nominal rate prevailing in the market is 7%. If inflation is expected to be 3.25%, estimate the actual real interest rate. (7-9)...
Q3) A bank is planning to make a loan of $5,000,000 to a firm in the steel industry. It expects to charge a servicing fee of 50 basis points. The loan has a maturity of 8 years with a duration of 7.5 years. The cost of funds (the RAROC benchmark) for the bank is 10 percent. The bank has estimated the maximum change in the risk premium on the steel manufacturing sector to be approximately 4.2 percent, based on two...
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