Calculate the 10-year break-even inflation rate

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1. You own an investment that had a total (nominal) return of 13.5% last year.  Assume the inflation rate was 4.2%, calculate the real rate of return on the investment using the Exact Fisher Equation. (Enter percentages as decimals and round to 4 decimals)

2. Suppose you are given the following information about U.S. Treasury Notes:

A 5-year T-NOTE has a yield to maturity of 3.5%

A 10-year T-NOTE has a yield to maturity of 4.2%

Suppose you are given the following information about U.S. TIPS Notes:

A 5-year TIPS has a yield to maturity of 1.2%

A 10-year TIPS has a yield to maturity of 1.35%

Calculate the 10-year break-even inflation rate using the approximate Fisher Equation. (Enter percentages as decimals and round to 4 decimals)

Reference no: EM132384617

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