Question

Consider the following information for a period of years: Arithmetic Mean Long-term government bonds 7.1 % Long-term corporate bonds 7.2 Inflation 4.2 a. What is the real return on long-term government bonds

Answer 1

A. 2.79%

B. 2.88%

Step-by-step explanation:

A. Calculation for What is the real return on long-term government bonds

Real Return of Long-term government bonds = (1.071/1.042) - 1

Real Return of Long-term government bonds = 1.0279-1

Real Return of Long-term government bonds = =2.79%

B. Calculation Real Return of Long-term corporate bonds

Real Return of Long-term corporate bonds

= (1.072/1.042) - 1

Real Return of Long-term corporate bonds=1.0288-1

Real Return of Long-term corporate bonds = 2.88%