By subtracting from the interest rate of a Canada coupon bond the interest rate of a similar maturity's real return bond, provides us with an insight about ________.
A) the expected inflation
B) the real interest rate
C) the current yield
D) the discounted yield

Question

Quizplus · Accepted Answer

The difference between the interest rate of a nominal bond (like a Canada coupon bond) and a real return bond (which adjusts for inflation) gives an insight into the market's expectations of inflation over the bond's term. This is because the nominal bond's interest rate includes compensation for expected inflation, whereas the real return bond's interest rate reflects the real interest rate after adjusting for inflation.

By Subtracting from the Interest Rate of a Canada Coupon