You will receive $100 from a zero-coupon savings bond in 3 years. The nominal interest rate...

You will receive $100 from a zero-coupon savings bond in 3 years. The nominal interest rate is 7.20%.

a. What is the present value of the proceeds from the bond? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

b. If the inflation rate over the next few years is expected to be 2.20%, what will the real value of the $100 payoff be in terms of today’s dollars? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

c. What is the real interest rate? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

d. Show that the real payoff from the bond [from part (b)] discounted at the real interest rate [from part (c)] gives the same present value for the bond as you found in part (a). (Do not round intermediate calculations. Round your answer to 2 decimal places.)

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jeff jeffy answered 1 year ago

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