The yield to maturity on a bond is currently 6.48%. The real rate of return is 2.87%. What is the rate of inﬂation?

Question

Quizplus · Accepted Answer

The Fisher Effect states that the nominal interest rate is equal to the real interest rate plus the expected inflation rate.
Therefore, Nominal Interest Rate = Real Interest Rate + Inflation Rate
In this case, we can use the Fisher Effect formula to solve for the inflation rate:
6.48% = 2.87% + Inflation Rate
Inflation Rate = 6.48% - 2.87%
Inflation Rate = 3.61%
Therefore the correct answer is B.

The Yield to Maturity on a Bond Is Currently 6