Create an Excel spreadsheet to organize your answers to the following problem, and submit your Excel file as an attachment by clicking on the appropriate button on this page.

Part 1: Assuming that the pure rate of interest is 2%, and investors require an inflation premium of 3.5% and a risk premium of 6% to invest in a certain security, calculate the following rates using the multiplicative form of the Fisher model:

The nominal rate of interest on the security
The real rate of interest on the security
The risk-free rate of interest on securities of this maturity
(Please carry your final answers out to 2 decimal places.)

Part 2: An Inyo County California municipal bond is currently yielding 4.2%. What after-tax yield would you receive if you are in the following circumstances:

You are in a 28% federal tax bracket, and, as a California resident, you are in the 5% state tax bracket.
You are in a 33% federal tax bracket, and, as a Utah resident, you pay a 4% state income tax.
You are in a 15% federal tax bracket, and, as a Nevada resident, you pay no state income tax because Nevada has no income tax.
(Please carry your final answers out to 2 decimal places.)

Part 3: The expected return on a share of ExxonMobil stock in the U.S. is 15.6% while the expected return on a share of Royal Dutch Shell stock is 12.6% in the Netherlands. If the pure rate of return is 2% in both countries and the required risk premium is 6% for each company’s stock, what is the long-term expected inflation rate in each country if the multiplicative form of the Fisher model is used in making the calculations?

Sample Solution

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Please read the attached document and thoroughly respond to the prompt in continuous prose form (i.e. paragraphs, not bullet points, notes, etc.). Remember to proofread, check your spelling, and use proper grammar. Your writing should be formal in nature, which means no slang or contractions, all verbs, and their subjects must agree, and the text must adhere to all grammar rules. Poor execution will definitely negatively impact your assignment grade. Your work should reflect your knowledge (including research) of the weekly topic, meaning that it will be both thorough and comprehensive. Skimpy responses are not acceptable.

Your response should be, at minimum, 600 words (single-spaced, 12-point Times New Roman, 1-inch margins) in length. Your full name, the CRN number, and the assignment number must appear in the header of every page of your submission.