Solved: What is the real return on the index-linked bond, Finance Basics

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What is the real return on the index-linked bond

Problem: You are considering a choice between investing $1,000 in a conventional one-year T-bill offering an interest rate of 8% and a one-year index-linked inflation plus T-bill offering 3% plus the rate of inflation.

a. Which is the safer investment?

b. Which offers the higher expected return?

c. What is the real return on the index-linked bond?

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Finance Basics: What is the real return on the index-linked bond

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