If the nominal interest rate on a one-year bond is 10% and the expected inflation rate is 2%, the nominal rate of return and the expected cost of holding cash are and respectively.

Since one can choose between holding bonds or holding cash, the cost of holding cash is the nominal interest rate of holding bonds. Meanwhile, the nominal rate of return of holding cash is 0% (because it does not generate any interest payment).

So, the nominal rate of return of holding cash is 0% and the expected cost of holding cash is 10%.

(Be careful not to be misled by the expected inflation rate)

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If the nominal interest rate on a one-year bond is 10% and the expected inflation rate is 2%, the nominal rate of return and the expected cost of holding cash are __________ and __________ respectively.

If the nominal interest rate on a one-year bond is 10% and the expected inflation rate is 2%, the nominal rate of return and the expected cost of holding cash are and respectively.