If inflation is 6%,what real rate of return is earned by an investor in a bond that was purchased for $1,000,has an annual coupon of 8%,and was sold at the end of the year for $960?
A) −1.89%
B) 1.92%
C) −2.66%
D) 2.47%

Question

Quizplus · Accepted Answer

Nominal return = [$960 + (0.08 × $1,000) − $1,000] / $1,000 = 0.04Real return = 1.04 / 1.06 − 1 = −0.0189, or −1.89%

If Inflation Is 6%,what Real Rate of Return Is Earned