10

e. Issuers with solid, stable cash flows tend to have higher credit ratings (investment grade) and their bonds tend to have lower coupon rates and yields 10. Suppose you decide to lend money. You want a real return of 5% and you expect inflation will be 4%. A year later when you get your money back, actual inflation turns out to be 11%. So what real return did you actually earn? a. 1% b. 2% c. 1% d. 2% e. There is not enough information to determine