Landscape business offer expected return

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Reference no: EM131993512

1. You are pleased to see that you have been given a 5.95% raise this year. However, you read on the Wall Street Journal Web site that inflation over the past year has been 1.81%. How much better off are you in terms of real purchasing power? (Note: not to around any intermediate steps less than six decimal places)

Your real purchasing power is ________% (round to two decimal)

2. If the rate of inflation is 5.8%, what nominal interest rate is necessary for you to earn a 3.8% real interest rate on your investment? (Note: not to around any intermediate steps less than six decimal places)

The nominal interest rate is ______ % (round to two decimal)

3. You are thinking about investing $4,816 in your friend's landscaping business. Even though you know the investment is risky and you can't be sure, you expect your investment to be worth $5,726 next year. You notice that the rate for one-year Treasury bills is 1%. However, you feel that other investments of equal risk to your frined's landscape business offer an expected return of 10% for the year. What should you do?

a. The present value of the return is $ __________

b. You should ____________

Please Explain to me step by step with answer

Reference no: EM131993512

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