112 PA R T I I Financial Markets Get the monthly data from 1976 to 2009 on the threemonth T-bill rate (CANSIM series V122531) from the Textbook Resources area of the MyEconLab a Plot the nominal interest rate, it b Calculate the change in it *it * it +1 , it c Plot *it Has the nominal interest rate become more or less volatile over the sample period? WEB EXERCISES One of the largest single influences on the level of interest rates is inflation There are a number of sites that report inflation over time Go to www bankofcanada.ca/en/cpi.htm and review the data What has the average rate of inflation been since 1995? What year had the lowest level of inflation? What year had the highest level of inflation? Increasing prices erode the purchasing power of the dollar It is interesting to calculate how much goods would have cost at some point in the past after adjusting for inflation Click on www bankofcanada.ca/en/inflation_calc.htm What is the cost today of a car that cost $10 000 the year that you were born? One of the points made in this chapter is that inflation erodes investment returns Go to www.moneychimp com/articles/econ/inflation_calculator.htm and review how changes in inflation alter your real return What happens to the difference between the adjusted value of an investment compared to its inflation-adjusted value as: a Inflation increases? b The investment horizon lengthens? c Expected returns increase? Be sure to visit the MyEconLab website at www.myeconlab.com.This online homework and tutorial system puts you in control of your own learning with study and practice tools directly correlated to this chapter content On the MyEconLab website you will find the following appendices and mini-case for this chapter: Appendix 5.1: Models of Asset Pricing Appendix 5.2: Applying the Asset Market Approach to a Commodity Market:The Case of Gold Mini-Case 5.1:The Behaviour of Interest Rates