1. TIPS Capital Return Consider a 2.75% TIPS with an issue CPI reference of 184.60. At the beginning of this year, the CPI was 191.70 and was at 201.60 at the end of the year. What was the capital gain of the TIPS in percentage terms? (Do not round the intermediate steps. Round your final answer to 2 decimal places.)
2. Determinants of Interest Rate for Individual Securities The Wall Street Journal reports that the rate on 3-year Treasury securities is 6.55 percent, and the 6-year Treasury rate is 6.75 percent. From discussions with your broker, you have determined that expected inflation premium is 2.65 percent next year, 2.60 percent in Year 2, and 3.00 percent in Year 3 and beyond. Further, you expect that real interest rates will be 3.50 percent annually for the foreseeable future. What is the maturity risk premium on the 6-year Treasury security?
3. Compound Frequency Payday loans are very short-term loans that charge very high interest rates. You can borrow $1,500 today and repay $1,770 in two weeks. What is the compound annual rate implied by this 18 percent rate charged for only two weeks?
4. Interest-on-Interest Consider a $1,100 deposit earning 5 percent interest per year for 8 years. How much total interest is earned on the original deposit (excluding interest earned on interest)?
5. Interest-on-Interest Consider a $3,200 deposit earning 8 percent interest per year for 7 years. How much total interest is earned on the original deposit (excluding interest earned on interest)?