1. The real interest rate approximately equals the nominal rate minus the inflation rate. Suppose the inflation rate increases from 3% to 5%. Does the Fisher equation imply that this increase will res

1. The real interest rate approximately equals the nominal rate minus

the inflation rate. Suppose the inflation rate increases from 3% to

5%. Does the Fisher equation imply that this increase will result in a

fall in the real rate of interest? Explain.

2. When estimating a Sharpe ratio, would it make sense to use the

average excess real return that accounts for inflation?