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© 2014 Pearson Canada Inc.#
If you expect the inflation rate to be 4 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 ____.
A) -3 percent
B) -2 percent
C) 3 percent
D) 7 percent
Answer: C
Diff: 2 Type: MC Page Ref: 79
Skill: Applied
Objective List: 4.3 Examine the distinction between real and nominal interest rates
The interest rate on Real Return Bonds is a direct measure of ____.
A) the real interest rate
B) the nominal interest rate
C) the rate of inflation
D) the rate of deflation
Answer: A
Diff: 1 Type: MC Page Ref: 81
Skill: Recall
Objective List: 4.3 Examine the distinction between real and nominal interest rates
Assuming the same coupon rate and maturity length, the difference between the yield on a
Real Return Bond and the yield on a Canada bond provides insight into ____.
A) the nominal interest rate
B) the real interest rate
C) the nominal exchange rate
D) the expected inflation rate
Answer: D
Diff: 1 Type: MC Page Ref: 81
Skill: Recall
Objective List: 4.3 Examine the distinction between real and nominal interest rates
Assuming the same coupon rate and maturity length, when the interest rate on a Real Return
Bond is 3 percent, and the yield on a nonindexed Canada bond is 8 percent, the expected rate of
inflation is ____.
A) 3 percent
B) 5 percent
C) 8 percent
D) 11 percent
Answer: B
Diff: 2 Type: MC Page Ref: 81
Skill: Applied
Objective List: 4.3 Examine the distinction between real and nominal interest rates