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

question 56

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 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 2 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)$68,000
• C)$72,000
• D)$75,000

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