Question

The outstanding bonds of Winter Time Products provide a real rate of return of 3.30 percent. The current rate of inflation is 2.30 percent. What is the nominal rate of return on these bonds

Answer 1

Answer:

Explanation:

Formula is (1 + i) = (1+ r)(1 + inf)

Where,

i is the nominal rate ; r is the real rate ; inf is the rate of inflation

Given that r = 3.3%; inf = 2.3%:

(1+i) = (1 + 0.033)(1 + 0.023)

1+i = 1.033*1.023

1+i = 1.056759

i = 0.056759

The nominal rate of return is 5.6759%