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Answer: the yield on a zero-coupon default-free real bond of the same maturity.
The break-even inflation rate is calculated as the difference between the yield on a nominal bond and the yield on a real bond of the same maturity. This represents the inflation rate that would make an investor indifferent between holding a nominal bond and a real bond. Option A is incorrect because expected inflation is not directly observable in the market. Option C describes the inflation risk premium component, which is part of the break-even rate but not the complete definition.
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The break-even inflation rate is the difference between the yield on a zero-coupon default-free nominal bond and:
A
nominal expected inflation for the same period.
B
the yield on a zero-coupon default-free real bond of the same maturity.
C
the premium required by investors to compensate them for uncertainty about future inflation.