A Bond That Pays Interest Annually Yields a 7

question 52

Multiple Choice

A bond that pays interest annually yields a 7.25% rate of return. The inflation rate for the same period is 3.5%. What is the real rate of return on this bond?

• A) 3.50%
• B) 3.57%
• C) 3.62%
• D) 3.72%
• E) 3.75%

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Definitions:

MPS

An acronym that can stand for multiple financial and economic terms, such as Marginal Propensity to Save, which indicates the fraction of additional income that a household saves.

45-Degree Line

In economics, a line on a graph that shows where the value of the goods and services produced in an economy equals the total income earned in that same economy.

Disposable Income

Income that is available for saving and spending after income taxes have been deducted.

Consumption

The act of using up goods and services by households or individuals, leading to a decrease in their quantity.