You bought one of Great White Shark Repellant Co.%u2019s 6.4 percent coupon bond

Question

You bought one of Great White Shark Repellant Co.%u2019s 6.4 percent coupon bonds one year ago for $1,058. These bonds make annual payments and mature 13 years from now. Suppose you decide to sell your bonds today, when the required return on the bonds is 6 percent.

If the inflation rate was 2.8 percent over the past year, what was your total real return on investment? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

You bought one of Great White Shark Repellant Co.%u2019s 6.4 percent coupon bonds one year ago for $1,058. These bonds make annual payments and mature 13 years from now. Suppose you decide to sell your bonds today, when the required return on the bonds is 6 percent.

Explanation / Answer

Bond price today = 64 PVIFA(6%,13) + 1000 PVIF(6%,13) = $1035.41

Total Return = 64+(1035.41-1058) = $41.41

Total Return (in%) = 41.41/1058 =3.91%

Total Real Return (in %) = 1.0391/1.028 -1 = 1.08%

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