Answered

If you expect the inflation rate to be 12 percent next year and a one-year bond has a yield to maturity of 7 percent, then the real interest rate on this bond is:.

Answer :

The real interest rate of the bond is -5%.

What is the real interest rate?

Real interest rate is the nominal interest rate less inflation. The real interest rate has been adjusted for inflation. It represents the real rate of return on an investment when inflation has been adjected for.

What is the real interest rate of the bond?

Real interest rate = nominal interest rate - inflation.

7% - 12% = -5%

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