Actual inflation rate for the year turns

Reference no: EM131798428

You would like to invest $20,000 for a year in a risk-free investment. A conventional CD offers a 4.6% annual rate of return. You are also considering an "Inflation-Plus "CD which offers a real rate of return of 2.2% regardless of the inflation rate.

a. What is the implied (expected) inflation rate?

b. You decide to invest $10,000 in the conventional and $10,000 in the "Inflation-Plus" CD. What is your expected dollar value at the end of the year?

c. Which of the two CDs is a better investment if the actual inflation rate for the year turns out to be 2 .2%?

Reference no: EM131798428

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