What is the present value of the proceeds from the bond

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Reference no: EM132069638

Real versus Nominal Rates. You will receive $100 from a savings bond in 3 years. The nominal interest rate is 8%.

a. What is the present value of the proceeds from the bond?

b. If the inflation rate over the next few years is expected to be 3%, what will the real value of the $100 payoff be in terms of today’s dollars?

c. What is the real interest rate?

d. Show that the real payoff from the bond [from part (b)] discounted at the real interest rate [from part (c)] gives the same present value for the bond as you found in part (a).

Reference no: EM132069638

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