{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

# Chapter 5 - Chapter 5 Answer Key Problem Sets 6 13 16 CFA...

This preview shows pages 1–2. Sign up to view the full content.

Chapter 5 – Answer Key: Problem Sets: 6, 13, & 16 CFA Problems: 1, 2, 3, 4, & 5 Problem Sets: 6. a. The “Inflation-Plus” CD is the safer investment because it guarantees the purchasing power of the investment. Using the approximation that the real rate equals the nominal rate minus the inflation rate, the CD provides a real rate of 1.5% regardless of the inflation rate. b. The expected return depends on the expected rate of inflation over the next year. If the expected rate of inflation is less than 3.5% then the conventional CD offers a higher real return than the Inflation-Plus CD; if the expected rate of inflation is greater than 3.5%, then the opposite is true. c. If you expect the rate of inflation to be 3% over the next year, then the conventional CD offers you an expected real rate of return of 2%, which is 0.5% higher than the real rate on the inflation-protected CD. But unless you know that inflation will be 3% with certainty, the conventional CD is also riskier. The

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern