Mr Slow considers choosing between two investments : One guaranteed investment A offers him a retum of 8% per year, while another inflation-protected investment B that stipulates 5% per year plus annual inflation rate . Both investments are required to be held for two years . If Mr Slow anticipates inflation in the first year to be %, what is the maximum inflation rate that can occur in the second year in order to make Mr. Slow indifferent to cither investment? bWhich investment is likely safer , at least from a potential return standpoint ?

Answer rating: 100% (QA)

To determine the maximum inflation rate in the second year for Mr Slow to be indifferent between the two investments we need to compare the returns of ... View the full answer