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A German consumer, By Marks, buys a one-year German government bond (called a bund) for 200. He receives principal and interest totaling $218 one year later. During the year the CPI rose from 300 to 324, but he had thought the CPI would be at 318 by the end of the year. By Marks had expected the real interest rate to be _____ but it actually turned out to be _____.

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Whereas German By Marks had expected the real interest rate to be 6%, it actually turned out to be 8%, 2% more than he expected.

Data and Calculations:

Cost of government bond purchased = $200

Principal and interest after one year = $218

Interest rate = 9% ($18/$200 x 100)

Consumer price index (CPI) at the beginning of year 1 = 300

Actual CPI at the end of year 1 = 324

Expected CPI at the end of year 1 = 318

Expected real interest rate = 6% (18/300 x 100)

Actual real interest rate = 8% (24/300 x 100)

What is real interest rate?

The real interest rate refers to the interest rate that has removed the effects of inflation.  It is unlike the nominal interest rate, which is the rate before inflation adjustment. As a result, the nominal interest rate is known to be higher than the real interest rate.

Thus, whereas German By Marks had expected the real interest rate to be 6% but it actually turned out to be 8%.

Learn more about the real interest rate here: https://brainly.com/question/25877453

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