Hy Marks buys a one-year government bond on January 1, 2012, for $500. He receives principal plus interest totaling $545 on January 1,2013. Suppose that the CPI is 200 on January 1, 2012, and 214 on January 1, 2013. This increase in prices is more than Hy had anticipated; his guess was that the CPI would be 210 at the beginning of 2013.
Find the nominal interest rate, the inflation rate, the real interest rate, Hy's expected inflation rate, and Hy's expected real interest rate?