The Income Yield from a One-Year Infrastructure Bond Purchased Today

question 24

Short Answer

The income yield from a one-year infrastructure bond purchased today is 0.5%. Compute the real return from this bond if the inflation rate a year later is expected to be 4% and the capital gains yield is zero.

Calculate economic profit and distinguish it from accounting profit.

Identify the components of total revenue and total cost to determine profit.

Understand opportunity costs and how they influence business decisions.

Identify the normal rate of return and its importance in economic profit calculations.

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Definitions:

Production Quota

A limit set on the amount of a specific product that can be produced, often implemented by governments or organizations to control supply and stabilize prices.

Support Price

A price set by the government or a regulatory body at a certain level to maintain the income of producers and encourage production.

Excess Supplies

A situation where the quantity of a product offered is greater than the quantity demanded at the current price.

Producer Surplus

The difference between the amount producers are willing to supply goods for and the actual amount received from selling those goods.