# Three Finance Questions Set

1. Calculating Real Rates of Return [ LO4] If Treasury bills are currently paying 6 percent and the inflation rate is 2.6 percent, what is the approximate real rate of interest? The exact real rate?2. Inflation and Nominal Returns [ LO4] Suppose the real rate is 2.5 percent and the inflation rate is 4.1 percent. What rate would you expect to see on a Treasury bill?3. Interest Rate Risk [ LO2] Bond J is a 3 percent coupon bond. Bond K is a 9 percent coupon bond. Both bonds have 15 years to maturity, make semiannual payments, and have a YTM of 6 percent. If interest rates suddenly rise by 2 percent, what is the per-centage price change of these bonds? What if rates suddenly fall by 2 percent instead? What does this problem tell you about the interest rate risk of lower- coupon bonds?
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# Three Finance Questions Set

1. Calculating Real Rates of Return [ LO4] If Treasury bills are currently paying 6 percent and the inflation rate is 2.6 percent, what is the approximate real rate of interest? The exact real rate?2. Inflation and Nominal Returns [ LO4] Suppose the real rate is 2.5 percent and the inflation rate is 4.1 percent. What rate would you expect to see on a Treasury bill?3. Interest Rate Risk [ LO2] Bond J is a 3 percent coupon bond. Bond K is a 9 percent coupon bond. Both bonds have 15 years to maturity, make semiannual payments, and have a YTM of 6 percent. If interest rates suddenly rise by 2 percent, what is the per-centage price change of these bonds? What if rates suddenly fall by 2 percent instead? What does this problem tell you about the interest rate risk of lower- coupon bonds?
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