5) The required rate of return for a corporate project would be _____ if interest rates were lower. As such, we expect corporations to demand _____…

In 2007 and 2008, the nation of Zimbabwe faced severe hyperinflation. By late 2008, the estimated inflation was more than one trillion percent (that’s 1,000,000,000,000) per year.[1] Assuming an inflation rate of one trillion percent, what is the real rate of return on an investment with a two trillion percent nominal return?

10) Does the Fisher Effect approximation ( i ≈ E(INF) + iR ) provide a good estimate for the real rate of return in problem 8? How about problem 9?

11) When investors become very greedy, borrow a lot of money, and use that to buy penny stocks, this ____ the supply of loanable funds, and places ____ pressure on interest rates.

      a.   increases; upward

      b.   increases; downward

      c.   decreases; downward

      d.   decreases; upward

      e.   does not impact; does not place

[1] See table 1 of Hanke and Kwok (2009) http://object.cato.org/sites/cato.org/files/serials/files/cato-journal/2009/5/cj29n2-8.pdf