If the interest rate on a Real Return Bond is 2 percent and the interest rate on a Canada bond of similar maturity is 5 percent then ________ is equal to 3 percent.
A) the expected rate of inflation
B) the yield to maturity
C) current yield
D) expected interest rate

Question

Quizplus · Accepted Answer

The expected rate of inflation is equal to the difference between the nominal interest rate (5 percent for the Canada bond) and the real interest rate (2 percent for the Real Return Bond), which is 3 percent.

If the Interest Rate on a Real Return Bond Is