The Canadian risk-free rate is 5%. The British risk-free rate is 9%. Expected inﬂation in Canada is 3%. What is the expected inﬂation rate in Britain?

Question

Quizplus · Accepted Answer

The difference between the Canadian risk-free rate and the expected inflation rate is 2% (5% - 3% = 2%). Therefore, we can assume that the same difference exists between the British risk-free rate and the expected inflation rate. Thus, the expected inflation rate in Britain would be 7% (9% - 2% = 7%). Therefore, the correct answer is C.

The Canadian Risk-Free Rate Is 5