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Question(s) / Instruction(s):

A. (75.0 pts) Figure 1 in the text shows the estimated real and nominal rates for three-month Treasury bills. Go to www.martincapital.com/charts.htm and click on the “interest rates yields,” then on “real interest rates.”
a. Compare the three-month real rate to the long-term real rate. Which is greater?

b. Compare the short-term nominal rate to the long-term nominal rate. Which appears most volatile?

c. Compare Real Yields: Stocks vs. Treasuries. Which appears most volatile?

d. Compare Real Yields: Nominal vs. Real S&P 500 Dividends and Earnings. Which appears most volatile?

e. Compare Fed Funds Target: Nominal vs. Real. Which appears most volatile?

B. (75.0 pts) One of the largest single influences on the level of interest rates is inflation. There are a number of sites that report inflation over time. Go to ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt and review the data available. Note that the last columns report various averages. Move these data into a spreadsheet using the method discussed in the Web exploration at the end of Chapter 1.
a. What has the average rate of inflation been since 1950, 1960, 1970, 1980, 1990, 2000 and, 2005, 2006, 2007, 2008 and 2009?
b. Construct the table about these average rates of inflation using Excel;

c. Construct the line graph about the average inflation rates found in part (a)?

d. Which year had the lowest level of inflation? Which year had the highest level of inflation?

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