This question is based on the following information:

The annual interest rate on indexed federal government bonds is 2.5%

The annual interest rate on regular (non-indexed) federal government bonds is 6.5%

The annual interest rate on Essen Corp. bonds is 10.5%

The annual real interest rate is

Select one:

a. -2%

b. 2.5%

c. 3.5%

d. 5.5%

e. none of the above