Exam 4: Determining Interest Rates

The idea that nominal interest rates rise or fall one-for-one with expected inflation is known as

If you think that there is a 75% chance of a stock increasing by 8% and a 25% change of it falling by 20%, what is the expected return on the stock? Report using percentages with two decimal places.

Suppose you are risk neutral and you are deciding between two investments. One has a guaranteed return of 2% while the second has a 60% chance of a 10% return and a 40% chance of a -5% return. Which investment would you choose? Why?

If the expected gains on stocks rise, while the expected returns on bonds do not change, then