Question

You observe that the inflation rate in the United States is 3.4 percent per year and that T-bills currently yield 4 percent annually.

  

What do you estimate the inflation rate to be in Australia, if short-term Australian government securities yield 4 percent per year?

    

What do you estimate the inflation rate to be in Canada, if short-term Canadian government securities yield 7 percent per year?

    

What do you estimate the inflation rate to be in Taiwan, if short-term Taiwanese government securities yield 10.5 percent per year?

Answer 1

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Answer:

= (1+4%)*(1+4%)=(1+aus inf)*(1+3.4%)

=> aus inf = 4.6%

(1+7%)*(1+4%)=(1+can inf)(1+3.4%)

=> can inf = 7.6%

=>(1+10.5%)*(1+4%)=(1+taiwan inf)*(1+3.4%)

=> taiwan inf = 11.1%