A Bond Has a Nominal Rate of Return of 5

question 31

Multiple Choice

A bond has a nominal rate of return of 5.87% and the inflation rate is 4.13%. What is the approximate real rate?

• A)1.62%
• B)1.70%
• C)1.74%
• D)1.83%
• E)1.88%

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Definitions:

Consumer Price Index

A measure assessing the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.

GDP Deflator

The GDP deflator is a measure of the level of prices of all new, domestically produced, final goods and services in an economy, used to convert nominal GDP into real GDP.

Basket of Goods

A basket of goods is a fixed set of consumer products and services valued on a regular basis for calculating inflation or cost of living adjustments.

Teddy Bears

Soft, stuffed toys resembling bears, often used for comfort and play by children.