Question

​ deidre works for a pension fund and is thinking of buying some bonds that have a nominal interest rate of 6%. she believes that the inflation rate over the life of the bond will be 2%. the ex-post real interest rate on this bond is

Answer 1

Answer: The ex post real interest rate on this bond is 4%.

Ex post real interest rate refers to the real interest rate that accrues over a specific time period.

We can find the ex-post real interest rate on a bond by deducting the inflation rate from the nominal interest rate.

This is expressed as:

`\mathbf{Ex post real interest rate = Nominal interest rate - inflation rate}`

`\mathbf{Ex post real interest rate = 0.06 - 0.02}`

mathbf{Ex post real interest rate = 0.04}