Given That the Inflation Rate in 2006 Was About 3

Multiple Choice

Given that the inflation rate in 2006 was about 3.24%, while a short-term municipal bond offered a rate of 2.9%, which of the following statements is correct?

A) The purchasing power of investors in these bonds grew over the course of the year.
B) The real interest rate for investors in these bonds was greater than the rate of inflation.
C) Investors in these bonds were able to buy less at the end of the year than they could have purchased at the start of the year.
D) The nominal interest rate offered by these bonds gave the true increase in purchasing power that resulted from investing in these bonds.