The outstanding bonds of RTF, Inc., provide a real rate of return of 3.3%. The current rate of inflation is 2.85%. What is the nominal rate of return on these bonds?

Question

Quizplus · Accepted Answer

The nominal rate of return can be calculated using the Fisher equation, which is (1 + nominal rate) = (1 + real rate) * (1 + inflation rate). Plugging in the given values: (1 + nominal rate) = (1 + 0.033) * (1 + 0.0285) = 1.062455, which gives a nominal rate of approximately 6.24%.

The Outstanding Bonds of RTF, Inc