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During a period of severe inflation, a bond offered a nominal HPR of 83% per year. The inflation rate was 74% per year. a. What was the real HPR on the bond over the year

Respuesta :

Answer:

real HPR is 5.17 %

Explanation:

given data

nominal HPR = 83%

inflation rate = 74%

to find out

What was the real HPR on the bond over the year

solution

we find real interest rate r that is express as

r = [tex]\frac{R-i}{1+i}[/tex]        .........................1

here R is nominal rate and i is inflation rate

so put here value

r = [tex]\frac{0.83-0.74}{1+0.74}[/tex]

r = [tex]\frac{0.09}{1.74}[/tex]

r = 0.05172

so real HPR is 5.17 %

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