During a period of severe inflation, a bond offered a nominal HPR of 82% per year....
During a period of severe inflation, a bond offered a nominal HPR of 82% per year. The inflation rate was 72% per year.
a. What was the real HPR on the bond over the year? (Round your answer to 2 decimal places.)
b. Find the approximation rreal ≈ rnom– i.
Homework Answers
A.according to the formula:
Real HPR =(1+HPR )/(1+i)-1
= (1+0.82)/(1+0.72)-1 ~ 5.81%
B. approximation r real ~ nominal rate - inflation rate
~ 82%-72% =10%
this approximate real rate is too high in comparison with REAL holding period return
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