By Marks buys a one-year German government bond (called a bund)for $400.He receives principal and interest totalling $436 one year later.During the year the CPI rose from 150 to 162.The nominal interest rate on the bond was ________,and the real interest rate was ________.

Question

Quizplus · Accepted Answer

The nominal interest rate is calculated as (436-400)/400 = 0.09 or 9%. The inflation rate is (162-150)/150 = 0.08 or 8%. The real interest rate is the nominal rate minus the inflation rate, which is 9% - 8% = 1%.

By Marks Buys a One-Year German Government Bond (Called a Bund)for