Suppose you bought a 8.0 percent coupon bond one year ago for $903. The bond sel

Question

Suppose you bought a 8.0 percent coupon bond one year ago for $903. The bond sells for $938 today. Required: (a) Assuming a $1,000 face value, what was your total dollar return on this investment over the past year? (Do not include the dollar sign ($).) Total dollar return $ (b) What was your total nominal rate of return on this investment over the past year? (Do not include the percent sign (%). Round your answer to 2 decimal places (e.g., 32.16).) Total nominal rate of return % (c) If the inflation rate last year was 4.0 percent, what was your total real rate of return on this investment? (Do not include the percent sign (%). Round your answer to 2 decimal places (e.g., 32.16).) Total real rate of return %

Explanation / Answer

a)capital gain =938-903 =$35 coupon=1000*0.08 =80 Total dollar return =80+35 =$115 b)nominal rate of return =115/903 =12.74% c)real return =[(1+0.1274)/[(1+0.04)]-1=8.40%

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