1. Suppose you have $2,000 and plan to purchase a 10-year certificate of deposit

Question

1. Suppose you have $2,000 and plan to purchase a 10-year certificate of deposit (CD) that pays 12.0% interest, compounded annually. How much will you have when the CD matures?

$6,398.05

$6,211.70

$5,093.59

$6,025.35

2. Suppose 1-year T-bills currently yield 7.00% and the future inflation rate is expected to be constant at 4.50% per year. What is the real risk-free rate of return, r*? Disregard any cross-product terms, i.e., if averaging is required, use the arithmetic average.

2.03%

2.70%

2.13%

2.60%

2.50%

$6,398.05

$6,211.70

$5,093.59

$6,025.35

$7,391.92

2. Suppose 1-year T-bills currently yield 7.00% and the future inflation rate is expected to be constant at 4.50% per year. What is the real risk-free rate of return, r*? Disregard any cross-product terms, i.e., if averaging is required, use the arithmetic average.

2.03%

2.70%

2.13%

2.60%

2.50%

Explanation / Answer

i choose is 1)C 2)A

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