The interest rate on a conventional 10 year government of Canada bond is 6% per year, and the interest rate on 10
year real return (I.e inflation - adjusted) government of Canada bonds is 3.5% per year. You have $10,000 to invest in one of them. If you expect the average inflation rate to be 4.5% per year, which bond offers the higher expected rate of return? Ignoring any difference in risk, which would you prefer to invest in?
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