If the interest rate on a Real Return Bond is 2 percent and the interest rate on a Canada bond of similar maturity is 5 percent then the expected rate of inflation is equal to ________.
A) -3 percent
B) 7 percent
C) 3 percent
D) 2 percent

Question

Quizplus · Accepted Answer

The difference between the interest rate on a Real Return Bond and a Canada bond of similar maturity is the expected rate of inflation. So, 5% - 2% = 3%. Therefore, the expected rate of inflation is 3%.

If the Interest Rate on a Real Return Bond Is