Neco 2022 Economics Question 45

Practice objective / multiple choice question 45 from the 2022 Neco Economics examination.

Neco 2022 Economics Objective / Multiple Choice Medium Difficulty
Question 45 NECO • 2022 • ECONOMICS • objective

A one‑year bond pays a nominal interest rate of 12 % payable at the end of the year. The expected inflation rate for the next year is 9 %, but the actual inflation that occurred was 15 %.\n\n(i) Using the Fisher approximation, what is the expected real interest rate?\n(ii) What is the actual real interest rate earned by the bondholder (use the exact Fisher formula)?\n(iii) By how many percentage points did the bond's real return differ from the expected real return? Give your answer to two decimal places.

Answer Options

A. Expected real rate = 3%; actual real rate = -1.74%; difference = -4.74 percentage points
Correct Answer B. Expected real rate = 3%; actual real rate = -2.61%; difference = -5.61 percentage points
C. Expected real rate = 3%; actual real rate = -3.00%; difference = -6.00 percentage points
D. Expected real rate = 2%; actual real rate = -2.61%; difference = -4.61 percentage points
Correct Answer
B
Correct Option:
Expected real rate = 3%; actual real rate = -2.61%; difference = -5.61 percentage points

About This Question

This is Neco 2022 Economics Question 45. It is one of the objective questions from the 2022 Neco Economics examination.

Difficulty level: Medium .

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