ONLY NEED REAL RATE OF RETURN MY OTHER ANSWERS ARE RIGHT Suppose you bought a bo
ID: 2731336 • Letter: O
Question
ONLY NEED REAL RATE OF RETURN MY OTHER ANSWERS ARE RIGHT
Suppose you bought a bond with an annual coupon rate of 6.6 percent one year ago for $945. The bond sells for $980 today.
Assuming a $1,000 face value, what was your total dollar return on this investment over the past year?
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 percent rounded to 2 decimal places, e.g., 32.16.)
If the inflation rate last year was 1.5 percent, what was your total real rate of return on this investment? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Suppose you bought a bond with an annual coupon rate of 6.6 percent one year ago for $945. The bond sells for $980 today.
Explanation / Answer
Answer
Answer (c)
Nominal rate of return = (Interest earned + Gain on bond value) / Initial Investment
= ($ 1000 * 0.066) + ($980 - $945) / $945
= $ 66 + $ 35 / $945
= $ 101 / $945
= 0.1069
= 10.69%
Real Rate of Return = Nominal rate of return – Inflation
= 10.69% - 1.5%
Real Rate of Return = 9.19%
Answer : If the inflation rate last year was 1.5 percent, your total real rate of return on this investment was 9.19%
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.