Question

Consider these long-term investment data:
i. The price of a 10-year $ 100 par-zero coupon inflation-indexed bonds is $ 84.49.
ii. A real estate property is expected to yield 2 percent per quarter (nominal) with an SD of the (effective) quarterly rate of 10 percent.
a. Compute the annual rate on the real bond.
b. Compute the CC annual risk premium on the real-estate investment.
c. Use the appropriate formula and Excel’s Solver or its Goal Seek function to find the SD of the CC annual excess return on the real estate investment.
d. What is the probability of loss or shortfall after 10 years?


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  • CreatedJune 21, 2015
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