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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

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abiolataiwo2015

Answer:

A. 2.79%

B. 2.88%

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%

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