Assume the expected inflation rate in Finland is 3.3 percent compared to 2.4 percent in the U.S. A risk-free asset in the U.S. is yielding 4.3 percent. What approximate real rate of return should you expect on a risk-free Finnish security?

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Quizplus · Accepted Answer

The real rate of return can be calculated as: real rate = nominal rate - inflation. Therefore, the expected real rate of return on a risk-free Finnish security would be approximately 1.9 percent (4.3% - 2.4% = 1.9%). The other options are not accurate calculations of the real rate of return.

Assume the Expected Inflation Rate in Finland Is 3