Question

If the real interest rate was large during the last year, then a. inflation is expected to exceed the nominal interest rate in the future. b. inflation is expected to be less than the nominal interest rate in the future. c. actual inflation was less than the nominal interest rate. d. actual inflation was greater than the nominal interest rate.

Answer #1

Over the next year, the real interest rate is 2% and the
expected inflation rate is 5%.
A. What is the nominal interest rate on a one-year loan?
B. Assume that the actual inflation rate turns out to be 3%,
instead of 5%. • Who benefits, the lender or the borrower? • What
is the realized real interest rate on this loan?

5) Borrowers benefit and lenders lose when the
A) actual interest rate is less than the expected real interest
rate.
B) actual interest rate is greater than the expected real
interest rate.
C) actual interest rate is equal to the expected real interest
rate.
D) actual inflation rate is less than the expected inflation
rate.
is it (a) by chance

You expect inflation over the next year to be -2.5%. Actual
inflation over the last year was 2.59%, and the current nominal
interest rate is 6.3%. What is your expected real rate of interest
(in %)? Round to 0.01%. E.g., if your answer is 3.145%, record it
as 3.15.

a. What is realised real interest rate? Can a change in expected
inflation rate affect the realised real interest rate? Explain.
b. Suppose that there is an increase in expected inflation rate
from 3 percent to 6 percent. Given that the after-tax expected real
interest rate remains unchanged at 2 percent and the tax rate is 30
percent, find the original and the new nominal interest rates.
c. Suggest ONE way in which investors can reduce/avoid the risk
of unexpected...

Suppose that the nominal rate of interest is 5% and the expected
rate of inflation is 2%. Whats is the expected real rate of
interest according to Fisher? Calculate the after-tax expected real
rate of assuming a 30% marginal tax rate. If inflation expectations
increase by 2%, what will be the new nominal rate according to
fisher? According to darby/feldstein? What should happen to bond
prices and stock prices if the expected rate of inflation
increase

Given the nominal interest rate of 13% and the expected
inflation of 15%, then the value of the real interest rate is ___
?
2. With the real interest rate equal to 3% and the expected
inflation equal to 2%, then the value of the nominal interest rate
is___?
3. A lender prefers a (high or lower) real interest rate while a
borrower prefers a (higher or lower) real interest rate higher
lowreal interest rate.

The real rate of interest of a risk free bond is equal to:
a The nominal interest rate minus the premium for expected
inflation
b The nominal interest rate plus the risk premium
c The nominal interest rate minus the risk premium
d The nominal interest rate plus a plus the premium for expected
inflation

The real risk-free rate of interest is 3.8%. Inflation
is expected to be 2.5% this year and 4.0% during the next 2 years.
. Assume that the maturity risk premium is 0.5% for 2-year and 0.8%
for 3-year period. What is the yield on 2-year Treasury securities?
What is the yield on 3-year Treasury securities?

If workers and firms expect that inflation will be 3 percent
next year, and real wages are not changing over time, by how much
will nominal wages increase?
A)
more than 3 percent
B)
less than 3 percent
C)
3 percent
D)
depends on actual inflation for next year

Suppose the one year nominal interest rate is 3 percent and that
the expected inflation is equal to 4 percent. The price index over
this one year period went from 218 to 223. Compare the ex-ante real
rate of interest to the ex-post real rate of interest. Which real
rate of interest would you more likely be willing to spend today
and which real rate of interest would you more likely be willing to
save and why?

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