An investor purchases a bond paying a stated (coupon) interest rate of 3% when the market rate of interest for the bond is also 3%. Assuming that over the life of that bond, there was constant annual deflation of 0.5% per year, what was the real annual return on the bond?

A2.5%

B 3%

C3.5%

D. Cannot tell because you need to know what the price of the bond was at the time the bond was purchased