1. An investment offers a 12.5 percent total return over the coming year. Bill Bernanke thinks the total real return on this investment will be only 5.0 percent. What does Bill believe the inflation rate will be over the next year?
2. Elliott’s grandmother left him an inheritance that will provide an annual income for the next 20 years. He will receive the first payment one year from now in the amount of $21,600. Every year after that, the payment amount will increase by 4 percent. What is the inheritance worth to Elliott today if he can earn 9 percent on the investments?