You are graduating in two years. You want to invest your current savings of $8,200 in bonds and use the proceeds to purc
Posted: Sun Apr 17, 2022 6:23 pm
You are graduating in two years. You want to invest your current
savings of $8,200 in bonds and use the proceeds to purchase a
new car when you graduate and start to work. You can invest the
money in either Bond A, a two-year bond with
a 3.10 percent annual interest rate, or Bond B, an
inflation-indexed two-year bond paying 1.1 percent real
interest above the inflation rate (assume this bond makes annual
interest payments). The inflation rate over the next two years is
expected to be 1.4 percent. Assume that both bonds are
default free and have the same market price. Which bond should you
invest in? (Do not round intermediate
calculations. Round answers to 2 decimal places, e.g.
15.25%)
Nominal interest rate for Bond A
Nominal interest rate for Bond B
You should invest in
savings of $8,200 in bonds and use the proceeds to purchase a
new car when you graduate and start to work. You can invest the
money in either Bond A, a two-year bond with
a 3.10 percent annual interest rate, or Bond B, an
inflation-indexed two-year bond paying 1.1 percent real
interest above the inflation rate (assume this bond makes annual
interest payments). The inflation rate over the next two years is
expected to be 1.4 percent. Assume that both bonds are
default free and have the same market price. Which bond should you
invest in? (Do not round intermediate
calculations. Round answers to 2 decimal places, e.g.
15.25%)
Nominal interest rate for Bond A
Nominal interest rate for Bond B
You should invest in