Suppose you buy an inflation-indexed bond that will adjust with inflation and thus pay you $1,500 in real (inflation- adjusted) terms each year for the next five years, plus your real principal of $75,000 at the end of the fifth year.The nominal interest rate is 5 percent and the expected inflation rate is 3 percent.What is the present value of the bond? (Round off your answer to the nearest thousand dollars and pick the answer closest to the one you calculate.)
A)$65,000
B)$70,000
C)$74,000
D)$75,000

Question

Quizplus · Accepted Answer

The Answer of Suppose you buy an inflation-indexed bond that will adjust with inflation and thus pay you $1,500 in real (inflation- adjusted) terms each year for the next five years, plus your real principal of $75,000 at the end of the fifth year.The nominal interest rate is 5 percent and the expected inflation rate is 3 percent.What is the present value of the bond? (Round off your answer to the nearest thousand dollars and pick the answer closest to the one you calculate.)
A)$65,000
B)$70,000
C)$74,000
D)$75,000

Suppose You Buy an Inflation-Indexed Bond That Will Adjust with Inflation