Question

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

Answer 1

The correct answer is 7.85%.

Step-by-step explanation:

According to the scenario, the given data are as follows:

Rate of return (r) = 3.03%

Rate of inflation (i) = 4.68%

So, we can calculate the nominal rate of return by using following method:

Nominal rate of return = ( 1 + r) (1 + i) -1

By putting the value we get

Nominal rate of return = ( 1 + 0.0303) ( 1 + 0.0468) - 1

= 0.0785 or 7.85%