The outstanding bonds of Winter Time Products provide a real rate of return of 3

Finance Aug 07, 2020

The outstanding bonds of Winter Time Products provide a real rate of return of 3.03 percent. The current rate of inflation is 4.68 percent. What is the actual nominal rate of return on these bonds Select one: O a. 7.76 percent O b.7.85 percent O c. 7.33 percent O d. 7.58 percent O e. 7.71 percent

Expert Solution

Answer : Correct Option is (b.) 7.85 percent.

Calculations

Nomianl Interest Rate = [(1 + Real Interest Rate) * (1 + Inflation Rate)] - 1

= [(1 + 0.0303) * (1 + 0.0468)] - 1

= 1.0785 - 1

= 7.85%

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