consider an alternative indexed bond.
Suppose that the bond costs $1000. One year later, the nominal principal of the bond is adjusted to be $1000*(1 + ∏ e ), where ∏ e is the expected inflation rate over the year. Then the bond pays off the adjusted principal of $1000*(1 +∏ e ) plus an interest payment of, say, 3% of the adjusted principal.
What is the one-year expected and actual real interest rate on the indexed bond?
Why is the real interest rate uncertain but the nominal interest rate known in this case?