H missing link example oatmeal raisin cookies h you

Info icon This preview shows pages 5–12. Sign up to view the full content.

View Full Document Right Arrow Icon
H Missing Link:
Image of page 5

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

View Full Document Right Arrow Icon
Example: Oatmeal Raisin Cookies H You invest $100 for one year at a return of 10%. H Question: Are you better off than a year ago? By how much? H Suppose all you eat is cookies. Last year you could buy 100 cookies with $100. H Suppose inflation rate (and % increase in cookie prices) was 5% over the year. 6
Image of page 6
7 The Fisher Effect H Relationship between nominal interest rates, real interest rates, and the rate of inflation ( π ). H This can be re-written as: H Which can be approximated for low inflation rates as:
Image of page 7

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

View Full Document Right Arrow Icon
8 The Fisher Effect and Oatmeal Raisin Cookies H For our example above, this means: Whereas the approximation results in a real rate of 5%
Image of page 8
9 Canadian Interest Rates and Inflation
Image of page 9

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

View Full Document Right Arrow Icon
10 Real and Nominal Interest Rates: Ex-Ante and Ex-Post H When a lending or borrowing decisions is made, the nominal interest rate might be known, but the rate of inflation over the investment horizon is unknown, and therefore the real rate of return is unknown as well. H So in any given year, the actual (ex-post) real rate of return will be different from the ex-ante expected real rate of return.
Image of page 10
Mommy, Mommy, Where Do Interest Rates Come From?
Image of page 11

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

View Full Document Right Arrow Icon
Image of page 12
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    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.

    Student Picture

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

  • Left Quote Icon

    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.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    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.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern