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Question
Suppose you buy an inflation-indexed bond that will adjust with inflation and thus pay you $1,500 in real (inflation- adjusted) terms in one year. The nominal interest rate is 4 percent and the expected inflation rate is 2 percent. What is the present value of the bond? (Round off your answer to the nearest dollar and pick the answer closest to the one you calculate.)a. $1,415
b. $1,442
c. $1,471
d. $1,530
Answer
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