Question
In: Economics
1.A municipal bond that matures in one year has a $5,000 face value and is currently...
1.A municipal bond that matures in one year has a $5,000 face value and is currently priced at $4,650.00. Calculate the interest rate for this bond to two decimals. _________%
2.Suppose that inflation is exactly 1.00%. Calculate the real interest rate to two decimals._______%
Solutions
Expert Solution
Solution
(1)
Face value =$5000
Current price =$4650
Gain from investment in municipal bond=$350(5000-4650)
Interest rate=(gain*100)/current value
Interest rate =(350*100)/4650
Interest rate =35000/4650
So nominal Interest rate=7.52%
(2)
Real interest rate =nominal intrreast rate - inflation
Real interest rate =7.52-1
Real interest rate =6.52
Rahul Sunny answered 2 years agoRelated Solutions
A municipal bond that matures in one year has a $5,000 face value and is currently...
A municipal bond that matures in one year has a $5,000 face
value and is currently priced at $4,650.00. Calculate the interest
rate for this bond to two decimals.
%
Part 2 (1 point)
See Hint
Suppose that inflation is exactly 1.00%. Calculate the real
interest rate to two decimals.
%
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