Asked by Ja’Na Speller on Jun 04, 2024
Verified
The increase you realize in buying power as a result of owning a bond is referred to as the _____ rate of return.
A) Inflated.
B) Realized.
C) Nominal.
D) Real.
E) Risk-free.
Buying Power
The amount of goods or services that one's money can purchase, often influenced by inflation.
Rate of Return
Gains or losses incurred on an investment over a specifically defined period, formulated as a percentage of the investment’s kickoff cost.
- Appreciate the effect of inflation on bond returns and the Fisher effect.
Verified Answer
ZK
Zybrea KnightJun 04, 2024
Final Answer :
D
Explanation :
The real rate of return on a bond reflects the increase in buying power that results from owning the bond, taking into account the effects of inflation. This contrasts with the nominal rate of return, which does not account for inflation.
Learning Objectives
- Appreciate the effect of inflation on bond returns and the Fisher effect.
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