Adjusting for Inflation - Problem Set 26 | Financial Markets | ECON 423, Assignments of Financial Market

Download Adjusting for Inflation - Problem Set 26 | Financial Markets | ECON 423 and more Assignments Financial Market in PDF only on Docsity! PRINT Name _________________________________________________________ pledge ________ Professor Byrns Econ 423: Financial Markets Problem Set 26 Show relevant calculations in an attached Excel spreadsheet. Problem Set 26 Adjusting for inflation [Ensure that you consider cross-partial terms.] What are the real rates of interest in the following situations? 1. The nominal interest rate is 9% and the inflation rate is 2%. The real rate of interest is? 2. The nominal interest rate is 11% and the inflation rate is 5%. The real rate of interest is? 3. The nominal interest rate is 7% and the inflation rate is 12%. The real rate of interest is? 4. The nominal interest rate is 9% but the deflation rate is 12%. The real rate of interest is? What interest rates would you charge a borrower in the following situations? 5. The expected rate of inflation is 2%, and you want a 6% real return. You will charge? 6. The expected rate of deflation is 9%, and you want a 5% real return. You will charge? 7. The expected rate of inflation is 6%, and you want a 6% real return. You will charge? 8. The expected rate of deflation is 5%, and you want a 7% real return. You will charge? 9. The expected rate of inflation is 11%, and you want a 5% real return. You will charge? 10. If the rate of inflation in the United States were sustained at a 6% annual rate, the value of the dollar will fall by half in roughly ______ years. * * Hint: Answering question 10 may be facilitated if you look up the “Rule of 72” on Economicae.