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ECON 225 Why is the real interest rate uncertain

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ECON 225 Why is the real interest rate uncertain

Now, consider an alternative indexed bond. Suppose that the bond costs $1000. One year later, the nominal principal of the bond is adjusted to be $1000*(1 + π e ), where π e is the expected inflation rate over the year. Then the bond pays off the adjusted principal of $1000*(1 + π e ) plus an interest payment of, say, 3% of the adjusted principal. What is the one-year expected and actual real interest rate on the indexed bond? Why is the real interest rate uncertain but the nominal interest rate known in this case? (4 pts.)