The yield to maturity on a bond is currently 9.84 percent. the real rate of return is 3.29 percent. what is the rate of inflation?

Question

Harris

Business

14 August, 06:28

The yield to maturity on a bond is currently 9.84 percent. the real rate of return is 3.29 percent. what is the rate of inflation?

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Answers (1)

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Denisse · Answer 1

We are tasked to solve for the inflation rate where we know that it the level of the prices of the goods when and while the services are rising. We can use the approximation formula such as R = r + h where "R" is the nominal rate, the "r" for the real rate and "h" for the inflation rate.

Thus, solving the problem, we have:

9. 34 = 3.29 + h

h = 9.34 - 3.29

h = 6.05

The inflation rate is 6.05.