a bond has a yield to maturity of 3.89 percent. if the inflation rate is 1.48 percent, what is the real rate of return on the bond?

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04-11-2022
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a bond has a yield to maturity of 3.89 percent. if the inflation rate is 1.48 percent, what is the real rate of return on the bond?

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febyyyvaalentina febyyyvaalentina · Answer 1 · 2022-11-08T22:28:10-05:00

If the inflation rate is 1,48, the real rate of return on the bond is 6.37. It can be calculated by dividing the yield of maturity and inflation rate.

Real rate of return generally can be defined as the annual rate of take back taken into consideration after taxes and inflation. A rate of return that does not contain of taxes or inflation means as a nominal rate.

YTM = 3.89

Rate of inflation = 1.48

To find the real rate of return we can use this formula

RRR = (1 + YTM) : (1 + Inflation rate) - 1

RRR = ( 1 + 3.89) : (1 + 1.48) - 1

RRR = 4.89 : 2.48 - 1

RRR = 7.37 - 1

RRR = 6.37

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