An analyst is evaluating securities in a developing nation where the inflation r

Question

An analyst is evaluating securities in a developing nation where the inflation rate is very high. As a result, the analyst has been warned not to ignore the cross product between the real rate and inflation. A 6-year security with no maturity, default, or liquidity risk has a yield of 17.85%. If the real risk-free rate is 6.25%, what average rate of inflation is expected in this country over the next 6 years? Round your answer to two decimal places. (Hint: Refer to "The Links Between Expected Inflation and Interest Rates: A Closer Look.") %

Explanation / Answer

Hi, if you like my answer please rate me life-saver first. average rate of inflation is expected in this country over the next 6 years = 1.1785/1.0625 - 1 = 10.92%

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