If a One-Year Bond Pays a Fixed Interest Rate of 2.5

question 45

Multiple Choice

If a one-year bond pays a fixed interest rate of 2.5% per year and this year's inflation rate is 2.8%, what is your real rate of return?

• A)5)3%
• B)2)8%
• C)2)5%
• D)0)3%
• E)-0.3%

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Definitions:

Inverse Demand Function

A mathematical function that expresses price as a function of quantity demanded, illustrating how the price necessary to sell a given quantity changes.

Price

The amount of money required to purchase a good or service, often determined by supply and demand dynamics in the market.

Income

Funds accumulated over time from work or investing efforts, usually received systematically.

Utility Function

A representation in economics of how a consumer ranks different bundles of goods according to their level of satisfaction or happiness.