Consider these long-term investment data: i. The price of a 10-year $ 100 par-zero coupon inflation-indexed bonds

Question:

Consider these long-term investment data:
i. The price of a 10-year $ 100 par-zero 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?
Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a...