What is expected real interest rate

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1. In April 2016 Treasury 4 3/4s of 2040 offered a semiannually compounded yield to maturity of 2.80%. Recognizing that coupons are paid semiannually, calculate the bond's price. Assume face value is $1,000. (round to nearest whole dollar)

2. The two-year interest rate is 9% and the expected annual inflation rate is 4.5%.What is the expected real interest rate? (round to nearest 1 tenth of a percent)

3. A bond's credit rating provides a guide to its price. Assume Aaa bonds yield 3.3% and Baa bonds yield 4.2%. Assume you want to buy a 6% three-year bond with annual coupons and a face value of $1,000. How much should you pay for the bond if it is rated as Aaa? (round to nearest whole dollar)

Reference no: EM131867822

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