Answer: is equal to the yield spread between a real bond and a nominal bond of the same maturity.

The break-even inflation rate is mathematically defined as the difference between the yield on a nominal bond and the yield on a real bond (typically TIPS - Treasury Inflation-Protected Securities) of the same maturity. Option A is incorrect because the break-even rate includes both expected inflation and an inflation risk premium, not just the market's best guess. Option B is incorrect as the risk premium typically increases with longer maturities due to greater uncertainty about future inflation.

Author: LeetQuiz Editorial Team