C ezto.mheducation.com/hm.tpx nect FINANCE -Bonds instructions I help Question 8

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C ezto.mheducation.com/hm.tpx nect FINANCE -Bonds instructions I help Question 8 (of 10) Save &Ext; Submit value: 10.00 points An investment offers a total return of 11 percent over the coming year. Janice Yellen thinks the total real return on this investment will be only 7 percent What does Janice believe the inflation rate will be over the next year? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g, 32.16.) Inflation rate References eBook & Resources Worksheet omoulty Basic Learning Objective: 07-04 The nation on interest i

Explanation / Answer

(1+Nominal rate) = (1+Real rate)*(1+Inflation rate)

Inflation rate = {(1+nominal rate)/ (1+Real rate)} - 1

Nominal rate = 11% = 0.11

Real rate = 7% =0.07

Inflation rate = {(1+0.11)/ (1+0.07)} – 1 = {(1.11/1.07)} – 1

Inflation rate = 0.0374 = 3.74%

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