CPA11 Spring

CPA11 Spring - to maturity 4 How do we calculate the real...

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ECO412 CPA 11 __________________________ for Monday, February 25 Name Read in Hubbard Ch.4, “Interest Rates & Rates of Return,” pp. 75-81. Bring your calculator. 1. Why are bond prices and interest rates (yield to maturity) inversely related? Carefully explain. 2. Consider what a bond represents (is). Why then would the bond market (bond holders) hate inflation? Carefully explain. 3. When would a person make a higher actual “total rate of return” on a debt instrument than the yield
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Unformatted text preview: to maturity? 4. How do we calculate the real interest rate from the nominal interest rate? For investment decisions, is it better to consider real or nominal interest rates? Why? Lastly, why might the level of nominal interest rates not always be a good indicator of the level of real interest rates?...
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