Actual economic rate of return based on fisher effect

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Reference no: EM132024320

1. You expect that the actual rate of return in the United States will reach 4% next year and the inflation rate will reach 2%. Based on the Fisher effect, what is the U.S. expected nominal interest rate for a one-year risk-free guarantee?

2. The one-year U.S. treasury bond's nominal interest rate is 3.04%. If the expected inflation rate for the next year is 1.4%, what is the expected actual economic rate of return based on the Fisher effect?

3. The yield curve of the internal I-region shows that the 1-year, 2-year, 1-year, 3-year and 4-year securities are 5%, 6%, 6.5% and 6.75%, respectively. Using PET, calculate: A) Expected annual rate for one year B) Expected two-year rate for one year C) Expected three-year rate for one year D) Two-year expected rate for two years.

Reference no: EM132024320

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