Question

Consider the following information for a period of years:

Series Arithmetic Mean
Long-term corporate bonds 6.6 %
Long-term government bonds 6.5
Inflation 3.9

What is the real return on long-term government bonds? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Real Return ....... %

Answer 1

To calculate the real return on long-term government bonds, subtract the inflation rate of 3.9% from the nominal return of 6.5% to get a real return of 2.6%, or 2.60% when rounded to two decimal places.

Step-by-step explanation:

The real return on long-term government bonds can be found by adjusting the nominal return for inflation. You first need to use the formula for real return, which is: Real return = Nominal return - Inflation rate. In this case, the nominal return on the long-term government bonds is 6.5% and the inflation rate is 3.9%. We subtract the inflation rate from the nominal return to get the real return.

So, the real return on long-term government bonds would be: 6.5% - 3.9% = 2.6%. Therefore, the real return on long-term government bonds, when rounded to two decimal places, is 2.60%.