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A note on Inflation-indexed bond.

The interest rate (yield to maturity) on a 20-year inflation-indexed Treasury is 1.94 percent. The yield to maturity on a nominal 20-year Treasury is 4.14 percent.

According to this information, what is the average rate of inflation that financial market participants believe will occur over the next20 years?

Suppose that you believe that the average rate of inflation over the next 20 years will be 3.5 percent. What would you by the nominal or the inflation-indexed bond?

 

Business Economics, Economics

  • Category:- Business Economics
  • Reference No.:- M921259

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