# Consider these long-term investment data: The price of a 10-year \$100 par value zero-coupon…

Consider these long-term investment data: _ The price of a 10-year \$100 par value zero-coupon inflation-indexed bond is \$84.49. _ A real-estate property is expected to yield 2% per quarter (nominal) with a SD of the (effective) quarterly rate of 10%. a. Compute the annual rate of return on the real (i.e., inflation-indexed) bond. b. Compute the continuously compounded annual risk premium on the real-estate investment. c. Use the formula in footnote 17 and Excels Solver or Goal Seek to find the standard deviation of the continuously compounded annual excess return on the real-
Consider these long-term investment data: _ The price of a 10-year \$100 par value zero-coupon inflation-indexed bond is \$84.49. _ A real-estate property is expected to yield 2% per quarter (nominal) with a SD of the (effective) quarterly rate of 10%. a. Compute the annual rate of return on the real (i.e., inflation-indexed) bond. b. Compute the continuously compounded annual risk premium on the real-estate investment. c. Use the formula in footnote 17 and Excels Solver or Goal Seek to find the standard deviation of the continuously compounded annual excess return on the real-estate investment. d. What is the probability of loss or shortfall after 10 years?

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