$\text { Suppose you buy an inflation-indexed bond that will adjust with inflation and thus pay you } \$ 1,500 \text { in real (inflation- }$

question 4

Multiple Choice

$\text { Suppose you buy an inflation-indexed bond that will adjust with inflation and thus pay you } \$ 1,500 \text { in real (inflation- }$ adjusted) terms in one year.The nominal interest rate is 4 percent and the expected inflation rate is 2 percent.What is the present value of the bond? (Round off your answer to the nearest dollar and pick the answer closest to the one you calculate.)

• A)$1,415
• B)$1,442
• C)$1,471
• D)$1,530

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Definitions:

Graph

A visual representation of data or mathematical functions typically consisting of points on a coordinate plane.

Standard Form

A way of writing numbers, particularly very large or very small numbers, using powers of ten; also refers to a canonical form of equations in mathematics.

Vertex

A point where two or more curves, edges, or lines meet, often used to describe the corner point of a polygon or the peak or trough of a parabola.

Parabola

A symmetric curve formed by the intersection of a cone with a plane parallel to a straight line, generatrix, of the cone.