Neco Model Questions Vol1 2017 Economics Question 44

Practice objective / multiple choice question 44 from the 2017 Neco Model Questions Vol1 Economics examination.

Neco Model Questions Vol1 2017 Economics Objective / Multiple Choice Medium Difficulty
Question 44 NECO_MODEL_QUESTIONS_VOL1 • 2017 • ECONOMICS • objective

A one‑year government bond has a face value of ₦1,000 and is currently priced at ₦950. The nominal annual interest rate promised by the bond is 12 % and the expected inflation rate for the year is 8 %. (a) Compute the real interest rate using the Fisher equation. (b) Calculate the investor's effective real yield based on the purchase price. (c) Advise whether the bond is preferable to a savings account that guarantees a real return of 3 %.

Answer Options

A. Real rate (Fisher) ≈ 3.70 %; effective real yield ≈ -2.5 %; bond is preferable to the 3 % savings account.
B. Real rate (Fisher) ≈ 2.50 %; effective real yield ≈ -3.0 %; bond is not preferable to the 3 % savings account.
Correct Answer C. Real rate (Fisher) ≈ 3.70 %; effective real yield ≈ -2.5 %; bond is not preferable to the 3 % savings account.
D. Real rate (Fisher) ≈ 4.00 %; effective real yield ≈ -1.0 %; bond is not preferable to the 3 % savings account.
Correct Answer
C
Correct Option:
Real rate (Fisher) ≈ 3.70 %; effective real yield ≈ -2.5 %; bond is not preferable to the 3 % savings account.

About This Question

This is Neco Model Questions Vol1 2017 Economics Question 44. It is one of the objective questions from the 2017 Neco Model Questions Vol1 Economics examination.

Difficulty level: Medium .

View More Neco Model Questions Vol1 2017 Economics Questions More Neco Model Questions Vol1 Practice Questions Back to Questions

Master the Exam!

You've seen a preview, but there are thousands more questions plus AI tutor to break down complex solutions.

Unlock Full Access Available for Android & Windows
Chat with Support