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Nominal Versus Real Rate of Return on Bonds

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The outstanding bonds of Winter Time Products provide a real rate of return of 3.10 percent. The current rate of inflation is 2.30 percent. What is the nominal rate of return on these bonds?

5.42 percent

5.40 percent

5.49 percent

5.45 percent

5.47 percent

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Solution Summary

This solution discusses the difference between the real rate of return on a bond and the nominal rate of return, and illustrates how to find the nominal rate given that you know the real rate and the inflation rate.

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The nominal rate of return is the rate of return stated to the public. The real rate of ...

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