Suppose you bought a 5 percent coupon bond one year ago for $940. The bond sells

ID: 2645741 • Letter: S

Question

Suppose you bought a 5 percent coupon bond one year ago for $940. The bond sells for $1,005 today.

Requirement 2: What was your total nominal rate of return on this investment over the past year?

Requirement 3: If the inflation rate last year was 8 percent, what was your total real rate of return on this investment?

Requirement 1: Assuming a $1,000 face value, what was your total dollar return on this investment over the past year?

Requirement 2: What was your total nominal rate of return on this investment over the past year?

Requirement 3: If the inflation rate last year was 8 percent, what was your total real rate of return on this investment?

1>Dollar Return=1005-940 65 2>Nominal Rate of Return=(1005-940)*100/940 6.91 3>Real Rate of Return=Nominal Rate of Return-Inflation=6.91-8 -1.09

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