If an investor purchases a 3 percent, two-year Canada real return bond and the CPI increases 3 percent over each of the next two years, what does the investor receive at maturity?

Question

Quizplus · Accepted Answer

The real return bond adjusts for inflation. With a 3% annual CPI increase, the principal is adjusted to $1,060.90 after two years. The interest is calculated on the adjusted principal, resulting in a total of $1,092.73 at maturity.

If an Investor Purchases a 3 Percent, Two-Year Canada Real