Question

the outstanding bonds of Winter Tires Inc. provide a real rate of return of 3.6 percent. If the current rate of inflation is 2.68 percent, what is the actual nominal rate of return on these bonds?

Answer 1

Answer:

6.38%

Explanation:

(1 + nominal rate) = (1 + real rate) x (1 + inflation rate)

(1.036) x (1.0268) = 1.063765

Nominal rate = 1.063765 - 1 = 0.063765 = 6.38%