Tri-County Hauling has bonds outstanding that pay a 6% coupon, have a 5.47% yield to maturity, and a face value of $1,000. The current rate of inflation is 3.2%. What is the real rate of return on these bonds?

Question

Quizplus · Accepted Answer

The real rate of return can be calculated using the Fisher equation: (1 + nominal rate) = (1 + real rate) * (1 + inflation rate). Solving for the real rate: (1 + 0.0547) / (1 + 0.032) - 1 ≈ 0.0220 or 2.20%.

Tri-County Hauling Has Bonds Outstanding That Pay a 6% Coupon