Question

Consider the following information for a period of years: Arithmetic Mean Long-term government bonds 6.9 % Long-term corporate bonds 7.0 Inflation 3.8 a. What is the real return on long-term government bonds?

Answer 1

Answer:

the real return is 2.99%

Explanation:

The computation of the real return on long term government bond is shown below:

As we know that

Real rate of return is = [(1 + nominal rate) ÷ (1+inflation rate)] - 1

= [(1 + 0.069) ÷ (1 + 0.038)] - 1

= 2.99%

hence, the real return is 2.99%

We simply applied the above formula so that the correct value could come

And, the same is to be considered