Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Transcribed Image Text:Suppose Home Depot issues 30-year bonds on which it pays a 4.00% (nominal) interest rate. Further, suppose that both
Home Depot and the purchasers of its bonds anticipate inflation will average 2.00% during the life of the loan. Now
suppose the inflation rate after the loan is made (i.e. after the bond is purchased) is actually 1.00% per annum. It follows
that the actual real rate of interest is
and, ceteris paribus,
are (is) better off than anticipated as a result of the
difference between the anticipated and the actual rate of inflation.
Select one:
a. 2.00%, Bondholders
b. 2.00%, Home Depot
O c. 3.00%, Bondholders
d. 3.00%, Home Depot
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