Final answer:
To obtain the yield to maturity on an AAPL bond in real terms with an expected inflation rate of 2.2%, the Fisher equation is used to adjust the nominal yield of 12%, resulting in a real yield to maturity of 9.5%.
Step-by-step explanation:
To calculate the yield to maturity on an AAPL bond in real terms, accounting for an expected inflation rate, we first need to understand that the yield to maturity (YTM) is the total return anticipated on a bond if the bond is held until it matures. The real yield to maturity is the yield adjusted for inflation.
Given the nominal YTM of 12%, from the example provided, we can adjust this yield for an expected inflation rate of 2.2% using the Fisher equation: (1 + nominal rate) = (1 + real rate) * (1 + inflation rate). The real rate here refers to the real YTM. Adjusting the given YTM for inflation rates results in a new equation where we solve for the real YTM.
Assuming the nominal rate (YTM) is 12% and the expected inflation rate is 2.2%, the calculation would be as follows:
(1 + 0.12) = (1 + real rate) * (1 + 0.022)
Real rate = [(1 + 0.12) / (1 + 0.022)] - 1
Real rate = 0.095 or 9.5% when expressed in real terms.