What is the average annual inflation over this bond life

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Reference no: EM131954768

Projections for inflation for the next few years are as follows:

year 1 2%

year 2 3%

year 3 5%

a) Calculate (and show your work) the inflation premium for a 2-year bond -- in other words, what is the average annual inflation over this bond's life?

b) Calculate (and show your work) the inflation premium for a bond maturing in 3 years -- in other words, what is the average annual inflation over the life of this bond?

Reference no: EM131954768

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