Inflation linked bond - Discount Rate?

CFA Level II Portfolio Management
#1

What would be the Discount rate for inflation-linked bonds

For a nominal default-free bond, we have = Rf + inflation + unexpected inflation

would inflation-linked bond DR be just Rf, since inflation and unexpected inflation would be included in cashflow?

#2

In all those equations in PM
I(t,s) - real return on gvt index linked bond = real risk free
using your terminology
nominal default-free bond, we have = Rf + inflation + unexpected inflation
real risk free = Rf

#3

Gotcha. So just RF
There was this question I don’t quite understand

He asks Chan to reflect on what the yield curve implies about investor expectations and the state of the economy. Chan states that the difference between the 10-year UK inflation-linked government bond rate and the 10-year nominal bond rate reflects both investor expectations about the level of future inflation as well as a premium for the uncertainty of future inflation.
Is Chan most likely correct in his response to Morgan’s question regarding how changes in the economy influence investors’ inflation expectations?

  1. Yes.
  2. No, with regard to the uncertainty of inflation.
  3. No, with regard to the future level of inflation.

I don’t understand why the answer is A. If Inflation Linked bond is just RF, shouldn’t the difference just between nominal and inflation-linked just reflect rf and not inflation and uncertainty around inflation? Idk if its the wording, but I do not get it

#4

Yea, I came across this too and am confused.

According to chatGPT:

Nominal bond rate = stated interest rate that does not adjust for inflation expectations/uncertainty

#5

Inflation linked bond.
Let say quoted at cpi + 0.5%
0.5% represents real risk free
but return you get will be inflation + risk free
CPI = 2%
coupon 2.5% = nominal risk free
(I know I have been fast a loose with actual method inflation adjustments work but it is good enough)
There is no inflation risk here as any change in inflation will automatticaly mean an adjustment in coupon/return

Non inflaton linked bonds yield 2.7%
0.5% real risk free
2.2% represents return due to expected inflation and how ceratin you are of what inflation may be.

German bonds Limited risk of inflation getting out of control
Turkish bonds High risk of inflation getting out of control - investors what extra premium due to high range of possible inlfation nu,bers.

Nominal rate could be
Real risk free + inlfation expectaions + risk expecations not correct