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AleksAgata [21]
2 years ago
10

The nominal interest rate in Fiji is 3%, while the nominal interest rate in the U.S. is 5%. Real interest rates in both countrie

s are 2%. According to purchasing power parity (PPP), the Fijian dollar (F$) may be expected to ________ by ________%.
Business
1 answer:
Aloiza [94]2 years ago
8 0

Answer:

1.98%

Explanation:

The computation is shown below:-

As we know that

PPP equation i.e

Nominal Interest rate = Real interest rate + Inflation rate

Now

The Inflation rate for Fiji is

= 5% - 2%

= 3%

And, the Inflation rate for US is

= 3% - 2%

= 1%

As we can see that the inflation rate for Fiji is more than the inflation rate for US so we should be depreciated the currency by considering the inflation differential which is shown below:

= (1 + 3%) ÷ (1 + 1%) -1

= 1.98%

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Answer:

The price of the bonds is $ 1,276.

Explanation:

The value of bond or issue price can be calculated by discounting all future cash flow using effective rate of retun. Detail calculations are given below.

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Explanation:

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Answer: See explanation

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