Suppose you bought a bond with a coupon rate of 8.6 percent one year ago for $90

Question

Suppose you bought a bond with a coupon rate of 8.6 percent one year ago for $909. The bond sells for $950 today. Required: (a) Assuming a $1,000 face value, what was your total dollar return on this investment over the past year? Total dollar return $ (b) What was your total nominal rate of return on this investment over the past year? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).) Total nominal rate of return % (c) If the inflation rate last year was 4.1 percent, what was your total real rate of return on this investment? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).) Total real rate of return %

Explanation / Answer

Purchase Price of bond=909 Total Receipt from the Bond = Coupon + Face Value=0.086*1000+1000=1086 (a) Total dollar return =1086-909=177 (b) Total nominal rate of return %=(177/909)*100=19.47% ©Total real rate of return %=Total nominal rate of return %-Inflation=19.47%-4.1%=15.37%

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