A change in the expected inflation will affect both the demand and the supply curve.
It will affect the demand curve because when the expected inflation rises, investors will demand a higher interest rate to cover their lost. Thus, demand for bonds fall, same for bond's price and the interest rate will increase. --> Leads to a left shift of the deand curve. And vis versa, if the expected inflation fall, then demand for bonds will rise, price will also rise and the interest rate will decrease. --> Right shift in the demand curve
For supply now, an increqse in the expected inflation will cause the bond price to fall and the interest rate to increase. --> Right shift in the supply curve. And vis versa
Hope, it is a little bit clearer now :)
I get the same value but according to my understanding of the question, isn't it the future value we want both our project to be ?
So don't we have to discount this value (according to strategy 2 --> 14807/(1.1^5) in order to get the value we want to put in the saving account?
you don't really need calculations, if you know that 50% is the mean, and that the standard deviation is how much it fluctuates from the mean, then you can just see that it changes by 25% for both 30 and 15, and so it must be it.
Hey. There are two ways of approacing this. First way (which makes maybe mroe sense from just reading the exercise): Calculate the value of the 5 cash flows in strategy 1 in year 6 (26231€). Now for the second strategy, we want to know what we need to invest now only one time to have the same amount in year 6. Therefore, we can simply compound x --> X*1,1^6=26231. Solve for X and you get the answer.
Alternatively, which is the smarter way of doing it is simply discounting all cash flows in strategy 1 to the present value, which let's you skip a step.