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GAAP – Standard Unqualified Report
We have audited the accompanying balance sheet of Company X as of December 31, 2009,
and the related statements of income, retained earnings, and cash flows for the year then
These statements are the responsibility of the company’s management.
responsibility is to express an opinion on these statements based on our audit.
We conducted our audit in accordance with U.S. GAAS.
Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatements.
An audit includes examining on a test
basis, evidence supporting the amounts and disclosures in the financial statements.
audit also includes assessing accounting principles used and significant estimates made by
management, as well as the overall financial statement presentation.
We believe that our
audit provides a reasonable basis for our opinion.
Suppose the rate of return on a 10-year T-bond is currently 5.00% and that on a 10-year Treasury Inflation
Protected Security (TIP) is 2.10%. Suppose further that the MRP on a 10-year T-bond is 0.9%, that no MRP is
required on TIPs, and that no liquidity premiums are required on any T-bonds. Given this data, what is the
expected rate of inflation over the next 10 years? Disregard cross-product terms, i.e., if averaging is required, use
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