Question

if you expect the inflation rate to be 15 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 1

If the inflation rate is  15 percent. The real interest rate on this bond is:22%.

Real interest rate

Using this formula

Real interest rat=Expected inflation rate+ One year yield to  maturity

Let plug in the formula

Real interest rate=15%+7%

Real interest rate=22%

Therefore the inflation rate is  15 percent. The real interest rate on this bond is:22%.

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