If You Expect the Inflation Rate to Be 15 Percent

question 42

Multiple Choice

If you expect the inflation rate to be 15 percent next year and a one-year bond has a yield to maturity of 7 percent,then the real interest rate on this bond is

• A)7 percent.
• B)22 percent.
• C)-15 percent.
• D)-8 percent.

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Definitions:

Secondarily Liable

Liability that is not primary but comes into effect when the party with primary liability has failed to fulfill an obligation.

Indorsers

Individuals who endorse or sign their name on the back of a document or cheque, thus transferring responsibility or ownership to another party.

Drawers

In banking and finance, individuals or entities that write and issue a check or draft instructing a bank to pay a specific amount from the drawer's account.

Accommodation Maker

A person who signs a loan agreement as a guarantor without receiving any benefits from the loan.