Question

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Assume that the inflation rate in 2019 was about 16.00%, while the 1-yr Treasury bill issued...

Assume that the inflation rate in 2019 was about 16.00%, while the 1-yr Treasury bill issued at the start of that year offered a nominal rate of 10.00%. Which of the following statements is correct?

Group of answer choices

Investors in these bonds decreased their purchasing power by 5.17%.

Purchasing power of money stayed the same over time.

The true increase in purchasing power that resulted from investing in these bonds was 10.00%.

Investors in these bonds increased their purchasing power by 16.00%.

Solutions

Expert Solution

By Fischer Equation,

(1 + 0.10) = (1 + 0.16)(1 + r)

r = -5.17%

Investors in these bonds decreased their purchasing power by 5.17%.

jeff jeffy answered 2 years ago
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