The argentine inflation rate is expected

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Reference no: EM132014508

1. Assume that U.S. and Argentine investors require a real return of 2 percent. If the U.S. nominal interest rate is 5 percent, and Argentina's nominral interest rate is 7 percent, then according to the IFE, the Argentine inflation rate is expected to be about ____ the U.S. inflation rate, and the Argentine peso is expected to ____.

a. 2 percentage points above; depreciate by about 2 percent

b. 3 percentage points below; appreciate by about 3 percent

c. 3 percentage points below; depreciate by about 3 percent

d. 3 percentage points above; depreciate by about 3 percent

e. 2 percentage points below; appreciate by about 2 percent

2. You have the chance to buy either one of two bonds. The first is a tax-free municipal with a coupon yield of 6.5%. The second is a corporate bond with a yield of 8.5%. Both bonds are rated AA. Your tax rate is 28%. Which would you choose? (Show all work.)

Reference no: EM132014508

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