If You Expect the Inflation Rate to Be 4 Percent

question 77

Multiple Choice

If you expect the inflation rate to be 4 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)-3 percent.
• B)-2 percent.
• C)3 percent.
• D)7 percent.

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Definitions:

Depreciate

A decrease in the value of an asset over time.

Standard Of Living

A level of wealth, comfort, material goods, and necessities available to a certain socioeconomic class or a geographic area.

Gold Standard

An economic system in which the value of a country’s paper currency is directly connected to gold.

Japan

An island country located in East Asia, known for its advanced technology, distinctive culture, and significant economic influence globally.