You are trying to estimate the real interest rate for the mining industry products and proceed...

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You are trying to estimate the real interest rate for the mining industry products and proceed as follows. You consider buying coal and gold in equal proportion, spending $1000 on coal, and another $1000 on gold in today's dollars. In 4 years from now, the selling values in actual dollars are predicted to be $1,255 (coal) and $1,265 (gold). Inflation (for coal) is 1.1% per year, for the next 4 years. For gold, the gold price index is predicted to rise in the next 4 years from the current 416 points to 435 points. Compute the estimated real interest rate, as a number, with 0.001 precision. Hint: Calculate real interest rate for the cash flow: 1) invest now $1000+$1000; 2) sell in 4 years coal and gold and obtain appropriate cash flow. You are trying to estimate the real interest rate for the mining industry products and proceed as follows. You consider buying coal and gold in equal proportion, spending $1000 on coal, and another $1000 on gold in today's dollars. In 4 years from now, the selling values in actual dollars are predicted to be $1,255 (coal) and $1,265 (gold). Inflation (for coal) is 1.1% per year, for the next 4 years. For gold, the gold price index is predicted to rise in the next 4 years from the current 416 points to 435 points. Compute the estimated real interest rate, as a number, with 0.001 precision. Hint: Calculate real interest rate for the cash flow: 1) invest now $1000+$1000; 2) sell in 4 years coal and gold and obtain appropriate cash flow.

Answer rating: 100% (QA)

To calculate the estimated real interest rate we need to compare the initial investment in today... View the full answer