Problem 1: An investment offers a 13 percent total return over the coming year. Jim Kelly thinks the total real return on this investment will be only 7 percent. What does Jim believe the inflation rate will be over the next year?
Interpreting Bond Yields
Problem 2: Suppose you buy a 7 percent coupon, 20 year bond today when it's first issued. If interest rates suddenly rise to 15 percent, what happens to the value of your bond? Why?