Suppose you bought a 8.2 percent coupon bond one year ago for $800. The bond sel

Question

Suppose you bought a 8.2 percent coupon bond one year ago for $800. The bond sells for $860 today. 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? (Round your answer to 2 decimal places. (e.g., 32.16)) Nominal rate of return % c. 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

Total dollar return:

= $860+$82-$800

= $142

Nominal rate of return:

= $142/$800

= 17.75%

(1+Nominal rate) = (1+Real rate)×(1+Inflation rate)

(1+17.75%) = (1+Real rate)×(1+2%)

Real rate = 15.44%

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