A bond that pays interest annually yields an 8.5% rate of return. The inflation rate for the same period is 4.6%. What is the actual real rate of return on this bond?

Question

Quizplus · Accepted Answer

The real rate of return can be calculated using the formula: [(1 + nominal rate) / (1 + inflation rate)] - 1. Plugging in the given values: [(1 + 0.085) / (1 + 0.046)] - 1 = 0.0373 or 3.73%.

A Bond That Pays Interest Annually Yields an 8