Ask Question
6 June, 21:43

A bond that pays interest annually yields a rate of return of 7.50 percent. The inflation rate for the same period is 2 percent. What is the real rate of return on this bond?

+5
Answers (1)
  1. 7 June, 00:47
    0
    5.39%

    Explanation:

    Given that,

    Bond that pays interest annually yields a rate of return = 7.50 percent

    Inflation rate for the same period = 2 percent

    Real rate = [ (1 + nominal rate) : (1 + inflation rate) ] - 1

    Real rate = [ (1 + 0.0750) : (1 + 0.02) ] - 1

    = (1.075 : 1.02) - 1

    = 1.0539 - 1

    = 0.0539 or 5.39%

    Therefore, the real rate of return on this bond is 5.39%.
Know the Answer?
Not Sure About the Answer?
Get an answer to your question ✅ “A bond that pays interest annually yields a rate of return of 7.50 percent. The inflation rate for the same period is 2 percent. What is ...” in 📙 Business if there is no answer or all answers are wrong, use a search bar and try to find the answer among similar questions.
Search for Other Answers