CAN ANYONE HELP ME TO SOLVE THOSE QUESTIONS. I WILL BE GIVING A LIFESAVER IF YOU

Question

CAN ANYONE HELP ME TO SOLVE THOSE QUESTIONS. I WILL BE GIVING A LIFESAVER IF YOU HELP ME.

 

1-If a bond dealer bought a $100,000 municipal bond at 92% of par and sold it at 96% of par, how much money did the dealer make on the bid-ask spread?



2-The one-year real rate of interest is currently estimated to be 3 percent. The current annual rate of inflation is 2 percent, and market forecasts expect the annual rate of inflation to be 5 percent. Approximately, what is the current one-year nominal rate of interest?

Explanation / Answer

the spread is 4% differance between buing and selling. here investor got profit of 4% that is 96$ -92% = 4% profit = $100000*4% =$4000 2) fisher effect : (1+n) = (1+r) (1+I) (1+n) = (1.03)+(1.02) There fore Nominal rare =(1.03)(1.02)-1 =1.071-1 Current year Nominal rate would be = 7.10%

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