The outstanding bonds of Frank's Welding provide a real rate of return of 2.87%. The current rate of inflation is 4.64%. 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: (1 + nominal rate) = (1 + real rate) * (1 + inflation rate). Solving for the nominal rate gives approximately 7.64%.

The Outstanding Bonds of Frank's Welding Provide a Real Rate