If a one-year bond pays a fixed interest rate of 2.5% per year and this year's inflation rate is 2.8%, what is your real rate of return?

Question

Quizplus · Accepted Answer

The real rate of return is the nominal rate of return (2.5%) minus the inflation rate (2.8%). Therefore, the real rate of return is -0.3%, indicating that there is a negative real return, and therefore an actual loss of purchasing power. Option E is the correct choice.

If a One-Year Bond Pays a Fixed Interest Rate of 2.5