Assuming the same coupon rate and maturity length, the difference between the yield on a Real Return Bond and the yield on a Canada bond provides insight into ________.
A) the nominal interest rate
B) the real interest rate
C) the nominal exchange rate
D) the expected inflation rate

Question

Quizplus · Accepted Answer

The difference between the yield on a Real Return Bond, which adjusts for inflation, and the yield on a conventional Canada bond, which does not, reflects the market's expectations for inflation. This is because Real Return Bonds compensate investors for inflation, whereas the yield on Canada bonds does not, making the difference an indicator of expected inflation.

Assuming the Same Coupon Rate and Maturity Length, the Difference