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CFAI Previous Test from 2012: Real vs. Nominal
In question 6E regarding Aquiline Chemicals pension plan, the question asks if they should have real or nominal bonds for the portion of their plan that is indexed to inflation. The answer key states it should be real rate bonds because those bonds "reflect risk premium and inflation". I cannot tie this together as Nominal = Real + Inflation. So I would guess nominal bonds should be used as they include the inflation component. In all of Kaplans material, they calculate a nominal return taking into account inflation, which seems to go against the CFAI exam answer.