Consider two government bonds. Both of them have a maturity of one year. The

first bond is a real-return bond with a coupon rate of 2% per year, payable once a year. It is

currently selling at par. The second bond is a regular bond with a coupon rate of 5% per year,

payable once a year. Its current price is $992. What is the expected inflation rate for the next

12 months, as implied by the prices of the two bonds?

solve using yield for bond b, real return for bond A and then equating nominal return. Use continuous compounding only