When evaluating a treasury bond, what two components are included in its return?

When evaluating a treasury bond, the return primarily consists of the expected inflation and the real rate of return. Treasury bonds are debt securities issued by the government, and their returns are influenced by these two key components.

The expected inflation component reflects the anticipated increase in price levels over time, which erodes purchasing power. Investors want to understand the impact of inflation on their returns, as it affects the real value of the interest payments they receive.

The real rate of return is the yield investors expect to receive after accounting for inflation. It represents the actual increase in purchasing power that investors gain from holding the bond. By focusing on these two components, investors can assess the true earning potential of a treasury bond and make informed decisions based on their financial goals and inflation expectations.

The other options listed do not pertain to treasury bonds: property appreciation and depreciation are more relevant for real estate investments, net operating income and capital gains relate to real estate investment analysis, and market value and carrying costs apply more to equity investments or business valuations.