Problem 10-4 Calculating Returns [LO 1] Assuming a $1,000 face value, what was y
ID: 2761651 • Letter: P
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Problem 10-4 Calculating Returns [LO 1]
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 percentage rounded to 2 decimal places (e.g., 32.16).)
If the inflation rate last year was 4.2 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).)
Suppose you bought a bond with a coupon rate of 8.2 percent one year ago for $905. The bond sells for $942 today.Explanation / Answer
1. r = dividend yield + expected capital gain = $ 82 ($1000*8.2/100) + $ 37 ($942-$905) = $ 119 2. Total normal rate of return = return / cost price = $ 119 / $905 = 13.15% 3. real rate of return if inflation rate is 4.2% = normal return - inflation rate = 13.15- 4.2 = 8.95%
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