If People Expect an Inflation Rate of 3

question 168

Multiple Choice

If people expect an inflation rate of 3.3 percent, and the real interest rate is 3 percent, the nominal interest rate equals (approximately)

• A) 0.3 percent.
• B) 8.6 percent.
• C) 6.3 percent.
• D) 9.9 percent.

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Definitions:

Serial Bonds

Serial bonds refer to a type of bond issue that is divided into several parts, each maturing at different intervals over a period of time, allowing the issuer to phase out the repayment over several years.

Annuity

A financial product that pays out a fixed stream of payments to an individual, typically used as part of a retirement strategy.