extra_problems_3

extra_problems_3 - 1.Money is invested in a savings account...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
1.Money is invested in a savings account with an annual effective rate of interest of 6% for two years. The annual rate of inflation is 3.2% compounded monthly for the first year and 4.8% compounded monthly for the second year. Calculated the "real" annual effective rate of interest earned over the two years. 1 i real 2 1.06 2 1 .032 12 12 1 .048 12 12 i real 1.06 2 1 .032 12 12 1 .048 12 12 1 2 1 1.8507251% 2. Let i 2 denote the annual nominal rate of interest compounded semi-annually and let r 2 denote the annual nominal rate of inflation compounded semi-annually. Derive an expression for the "real" annual nominal rate of interest compounded semi-annually. Hint: first find the "real" accumulation function. a r t a t p t 1 i 2 2 2 t 1 r 2 2 2 t 1 i 2 2 1 r 2 2 2 t i real 2 2 a r t 1 2 a r t a r t
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.
Ask a homework question - tutors are online