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In January of This Year, Max Purchases a Financial Instrument

Question 91

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In January of this year, Max purchases a financial instrument that has a nominal interest rate of 2.75%. The consumer price index in January was 211.93 and is expected to be 213.21 in a year. Suppose the consumer price index actually turns out to be 215.47 in one year. Based on this information, answer the following questions.
(a) What is the expected rate of inflation over the year?
(b) What is Max's expected real interest rate?
(c) What is Max's actual real rate of interest?

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