Purchase Solution

Find rate of inflation

Not what you're looking for?

Ask Custom Question

With the following data, find the expected rate of inflation during the next year.

- k* = real risk free rate = 3%

- Maturity risk premium on 10-year T-bonds = 2%. It is zero on 1-year bonds, and a linear relationship exists.

-Default risk premium on 10-year, A-rated bonds = 1.5%

-Liquidity premium = 0%

-Going interest rate on 1-year T-bonds = 8.5%

Purchase this Solution
Solution Summary

This solution is comprised of a detailed explanation of how to find the expected rate of inflation from the given information.

Purchase this Solution
Free BrainMass Quizzes
Six Sigma for Process Improvement

A high level understanding of Six Sigma and what it is all about. This just gives you a glimpse of Six Sigma which entails more in-depth knowledge of processes and techniques.

SWOT

This quiz will test your understanding of the SWOT analysis, including terms, concepts, uses, advantages, and process.

Lean your Process

This quiz will help you understand the basic concepts of Lean.

Situational Leadership

This quiz will help you better understand Situational Leadership and its theories.

Writing Business Plans

This quiz will test your understanding of how to write good business plans, the usual components of a good plan, purposes, terms, and writing style tips.

View More Free Quizzes
Related BrainMass Solutions

  • Inflation

    177349 Functions - Inflation Find the most recent report of the annual inflation rate of a country of your choice as well as the type of currency used in that country.

  • NPV with Inflation for Clarkwood Wood Products

    One of Clarkwood's concerns is that the price of wood is rising more rapidly than inflation. They expect that because of this their operating cost per unit will rise at a rate 4% higher than the rate of inflation.

  • Investment: Relevant Nominal Discount Rates and Inflation Rate

    )-1 =3.17% Hence, the real rate =3.17% Now we will find the present value of annuity .

  • Expectations theory

    The average inflation rate for 2 years is (2%+4%+4%)/3=3.3% Hence the yield on 3-year Treasuy is risk free+Inflation= 3%+3.33%=6.33% Answer: 6% and 6.67% Expectations theory is applied to find the interest rate on 3-year, risk-free securities.

  • Treasury Note Implied Expected Inflation Rate

    )^3/(1+11%)^2 -1 = 0.0717 or 7.17% Brief calculations show how to find the implied expected inflation rate during tear 3 of a treasury note with no maturity premium.

  • Econonomics

    Web resources, and/or other materials, find the most recent report of the annual inflation rate of a country of your choice as well as the type of currency used in that country.

  • 4 Year Investment With Nominal Discount 7.5% And Inflation 4.2%

    The relationship is as follows: Nominal rate = (1+real rate)*(1+ Inflation rate)-1 Thus in this first we will find the nominal rate of return 7.5%= (1+real rate)*(1+4.2%)-1 1.075/1.042= (1+real rate) Real rate= (1.075/1.042)-1 =3.17% Hence

  • Inflation rate and "Rule of 70"

    224856 Inflation Rate and "Rule of 70" If the CPI was 110 last year and is 121 this year, what is this year's rate of inflation? What is the "rule of 70"?

  • Annual Inflation Rate Calculation

    175906 Annual Inflation Rate Calculation Find the most recent report of the annual inflation rate of a country of your choice as well as the type of currency used in that country.

View More Related Solutions