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1. What is the nominal price of an orange in 25 years if the real price is $3, and the inflation rate
is 2.5%?
$3.08
$5.43
$4.56
$5.56
2. The yield on a bond is 12% and inflation is expected to be 3%. Calculate the real interest rate
on the bond.
9%
8.74%
8.04%
9.28%
3. What is the real price of an orange in 10 years if the nominal price is $1.50, and the inflation
rate is 4%?
$1.50
$2.22
$1.01
$1.41
$3.08
$5.43
$4.56
$5.56
Solution
Answer:1 Nominal Price=$3*(1.025)25=5.56
Answer:2 Calculation of the Real interest rate:
Real interest rate=[(1+interest rate)/(1+inflation rate)]-1
=[(1.12/1.03)]-1
=8.74%
Answer:3 Real price=$1.50(1.04)10
=$2.22

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1. What is the nominal price of an orange in 25 years if the real pr.pdf

  • 1. 1. What is the nominal price of an orange in 25 years if the real price is $3, and the inflation rate is 2.5%? $3.08 $5.43 $4.56 $5.56 2. The yield on a bond is 12% and inflation is expected to be 3%. Calculate the real interest rate on the bond. 9% 8.74% 8.04% 9.28% 3. What is the real price of an orange in 10 years if the nominal price is $1.50, and the inflation rate is 4%? $1.50 $2.22 $1.01 $1.41 $3.08 $5.43 $4.56 $5.56 Solution Answer:1 Nominal Price=$3*(1.025)25=5.56 Answer:2 Calculation of the Real interest rate: Real interest rate=[(1+interest rate)/(1+inflation rate)]-1 =[(1.12/1.03)]-1 =8.74% Answer:3 Real price=$1.50(1.04)10 =$2.22