Mathematics
Mathematics, 22.10.2019 19:00, yarrito20011307

You are considering the choice between investing $50,000 in a conventional 1-year bank cd offering an interest rate of 5% and a 1-year "inflation-plus" cd offering 1.5% per year plus the rate of inflation. a. which is the safer investment? b. can you tell which offers the higher expected return? c. if you expect the rate of inflation to be 3% over the next year, which is the better investment? why? d. if we observe a risk-free nominal interest rate of 5% per year and a risk-free real rate of 1.5% on inflation-indexed bonds, can we infer that the market's expected rate of inflation is 3.5% per year?

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