Question

During a period of severe inflation, a bond offered a nominal HPR of 83% per year. The inflation rate was 74% per year. a. What was the real HPR on the bond over the year

Answer 1

Answer:

real HPR is 5.17 %

Explanation:

given data

nominal HPR = 83%

inflation rate = 74%

to find out

What was the real HPR on the bond over the year

solution

we find real interest rate r that is express as

r = $\frac{R-i}{1+i}$        .........................1

here R is nominal rate and i is inflation rate

so put here value

r = $\frac{0.83-0.74}{1+0.74}$

r = $\frac{0.09}{1.74}$

r = 0.05172

so real HPR is 5.17 %