1) Assuming the same coupon rate and maturity length, the difference between the yield on a
Treasury Inflation Protected Security and the yield on a nonindexed Treasury security provides insight into
A) the nominal interest rate.
B) the real interest rate.
C) the nominal exchange rate.
D) the expected inflation rate.
2) Assuming the same coupon rate and maturity length, when the interest rate on a Treasury
Inflation Protected Security is 3 percent, and the yield on a nonindexed Treasury bond is 8 percent, the expected rate of inflation is
A) 3 percent.
B) 5 percent.
C) 8 percent.
D) 11 percent.
3) Would it make sense to buy a house when mortgage rates are 14% and expected inflation is 15%? Explain your answer.