Suppose you bought a 6 percent coupon bond one year ago for $920. The bond sells
ID: 2619001 • Letter: S
Question
Suppose you bought a 6 percent coupon bond one year ago for $920. The bond sells for $940 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 3 percent, what was your total real rate of return on this investment? (Round your answer to 2 decimal places. (e.g., 32.16))
Suppose you bought a 6 percent coupon bond one year ago for $920. The bond sells for $940 today.
Explanation / Answer
a.
total dollar return=capital gain+income return
=(940-920)+(1000*6%)
=20+60
=80
b.
nominal rate of return=dollar return/bought value
=80/920
=8.70%
c.
real rate of return=((1+nominal rate)/(1+inflation))-1
=((1+8.70%)/(1+3%))-1
=5.53%
The above should be answer..
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