Suppose you bought a 5.6 percent coupon bond one year ago for $800. The bond sel
ID: 2736873 • Letter: S
Question
Suppose you bought a 5.6 percent coupon bond one year ago for $800. The bond sells for $865 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? (Round your answer to 2 decimal places, (e.g., 32.16)) If the inflation rate last year was 2 percent, what was your total real rate of return on this investment? (Round your answer to 2 decimal places, (e.g., 32.16))Explanation / Answer
Ans) a) Bond bought at $800 and after one it sells for $865
Face value of bond = $1,000 , coupon rate = 5.6%
Total dollar return on the investment over the past year = Capital gain + 5.6% interest
= $865 - $800 + 5.6%*$1,000
= $65 + $56 = $121
b) Total nominal rate of return on this investment over the past year =
Total dollar return / cost of bond
= $121 / $800 = 15.12%
c) Total real rate of return on this investment if the inflation rate last year was 2%
= 15.12% - 2% = 13.12%
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.