1. You are considering the choice between investing $50,000 in a conventional one-year bank certificate...
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1. You are considering the choice between investing $50,000 in a conventional one-year bank certificate of deposit (CD) with an interest rate of 7.00% per year and a one-year inflationplus CD offering 3.50% per year plus the rate of inflation. Assume you should use the exact formulation of the Fisher effect unless noted.
(a.) If you expect inflation to be 3.00% over the next year, what would the nominal interest rate offered on the inflation-plus CD be?
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