A bond yielded 6.21 percent last year. The inflation rate for the same period was 3.52 percent. What was the actual real rate of return?

Question

BlackTom AI · Accepted Answer

We start by identifying the key numbers in the question: the bond’s nominal return for the year is 6.21%, and the inflation rate for the same period is 3.52%.

Option-by-option analysis:

- 9.75%: This value is far higher than both the nominal return (6.21%) and the inflation-adjusted result. It would imply either an unrealistically large gain or a misapplication of compounding or misinterpretation of the rates. There is no basis in the given data for such a figure.

- 2.60%: This is the only option that lies in the plausible range for a real return derived from 6.21% nominal return after accounting for 3.52% inflation. If you subtract inflation from the nominal return (6.21% − 3.52% = 2.69%), you get a real return near 2.69%. Rounding or slight methodological differences (such as using a simplified approximation) can yield a value close to 2.60%. Among the provided choices, 2.60% is the closest match and aligns with the concept that real return is the excess after inflation.

- 9.95%: Like 9.75%, this is unrealistic given the nominal return of 6.21%. It would require a much larger real contribution than the data support, and there’s no mechanism in basic real-return calculations that would boost the real rate above the nominal rate by such a margin.

- 5.63%: This is higher than the nominal return after inflation, which would imply a miscalculation (inflation would need to be negative or the nominal return would have to be higher). It does not reflect the straightforward relationship real return ≈ nominal − inflation.

- 13.20%: This figure is clearly inconsistent with the given numbers; it would indicate an extremely large positive real return or a dramatic misinterpretation of rates, which contradicts the data provided.

In summary, using the common real-rate approach (real return ≈ nominal return − inflation), the calculation yields about 2.69%. Among the options, 2.60% is the closest and most reasonable choice given the data, while the others are evidently inconsistent with the reported figures and standard interpretation of real rate of return.

A bond yielded 6.21 percent last year. The inflation rate for the same period was 3.52 percent. What was the actual real rate of return?

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