The expected inflation rate in Finland is 2 percent while it is 4 percent in the U.S. A risk-free asset in the U.S. is yielding 5.5 percent. What real rate of return should you expect on a risk-free Finnish security?
A) 2.0%
B) 2.5%
C) 3.0%
D) 3.5%
E) 4.0%
Correct Answer:
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