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You would like to invest $15,000 for a year in a risk-free investment. A conventional certificate of deposit (CD) offers a 5.2% annual rate of return. You are also considering an “Inflation-Plus” CD which offers a real rate of return of 2.4% regardless of the inflation rate.

a. What is the implied (expected) inflation rate? (Round your answer to 2 decimal places.)

Implied inflation rate %

b. You decide to invest $7,500 in the conventional and $7,500 in the “Inflation-Plus” CD. What is your expected dollar value at the end of the year?

Expected value $

c. Which of the two CDs is a better investment if the actual inflation rate for the year turns out to be 2.4%?

Inflation-Plus CD turns out to be a better investment.

Conventional CD turns out to be a better investment.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92344061

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