An investor received an 8 percent coupon rate last year on a $1000 bond purchased at par. The inflation rate during the year was 4 percent and is expected to be 5 percent next year. The realized real rate earned by the investor last year was:

Question

Quizplus · Accepted Answer

The realized real rate is calculated by subtracting the inflation rate from the nominal rate. Last year, the nominal rate was 8%, and the inflation rate was 4%, so the realized real rate was 8% - 4% = 4%.

An Investor Received an 8 Percent Coupon Rate Last Year