Chapter 10, Problem 6QP

a)

Summary Introduction

To determine: The real return on long-term government bonds

Introduction:

The real rate of return refers to the rate of return on an investment after adjusting the inflation rate. The nominal rate of return refers to the rate of return on an investment before adjusting the inflation rate.

The rate at which the inflation increases is the inflation rate. The Fisher effect helps to establish a relationship between the nominal rate of return, inflation, and the real rate of return.

b)

Summary Introduction

To determine: The real return from long-term corporate bonds

Introduction:

The real rate of return refers to the rate of return on an investment after adjusting the inflation rate. The nominal rate of return refers to the rate of return on an investment before adjusting the inflation rate.

The rate at which the inflation increases is the inflation rate. The Fisher effect helps to establish a relationship between the nominal rate of return, inflation, and the real rate of return.