If You Expect the Inflation Rate to Be 5 Percent

question 93

Multiple Choice

If you expect the inflation rate to be 5 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) -12 percent.
• B) -2 percent.
• C) 2 percent.
• D) 12 percent.

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Definitions:

Yield Rate

The rate of return on an investment over a specified period, often expressed as a percentage.

Cost Schedule

A list or plan that outlines the anticipated costs involved in a project or business operation over time.

Ceramic Plates

Durable dishes made from clay that are hardened by heat, commonly used for eating, serving, and decoration purposes.

Flawed Units

items that have defects or do not meet the quality standards set by the manufacturer or industry, rendering them less valuable or unsellable.