Given that the inflation rate in 2006 was about 3.24%, while a short-term municipal bond offered a rate of 2.9%, which of the following statements is correct? A. The real interest rate for investors in these bonds was > the rate of inflation. B. Investors in these bonds were able to buy less at the end of the year than they could have purchased at the start of the year. C. The purchasing power of investors in these bonds grew over the course of the year. D. The nominal interest rate offered by these bonds gave the true increase in purchasing power that resulted from investing in these bonds.

Question

Jovan Stafford

Business

10 March, 11:14

Given that the inflation rate in 2006 was about 3.24%, while a short-term municipal bond offered a rate of 2.9%, which of the following statements is correct? A. The real interest rate for investors in these bonds was > the rate of inflation. B. Investors in these bonds were able to buy less at the end of the year than they could have purchased at the start of the year. C. The purchasing power of investors in these bonds grew over the course of the year. D. The nominal interest rate offered by these bonds gave the true increase in purchasing power that resulted from investing in these bonds.

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Answers (1)

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Tristian Randolph · Answer 1

The correct answer is b) "Investors in these bonds were able to buy less at the end of the year than they could have purchased at the start of the year."

Explanation:

In short words, the return rates that are under inflation, makes you lose money.