If the Annual Real Rate on a 10-Year Inflation-Protected Bond

Multiple Choice

If the annual real rate on a 10-year inflation-protected bond equals 1.9 percent and the annual nominal rate of return on a 10-year bond without inflation protection is 4.4 percent, what average rate of inflation over the ten years would make holders of inflation-protected bonds and holders of bonds without inflation protection equally well off?

A) 1.9 percent
B) 2.5 percent
C) 4.4 percent
D) 6.3 percent