1. Suppose you bought a 6 percent coupon bond one year ago for $890. The bond se

ID: 2701710 • Letter: 1

Question

1. Suppose you bought a 6 percent coupon bond one year ago for $890. The bond sells for $915 today.

(a)

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

Total dollar return $_____________ (round to 2 decimal places)

(b)

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

Nominal rate of return __________ percent (round to 2 decimal places)

(c)

If the inflation rate last year was 12 percent, what was your total real rate of return on this investment?

Real rate of return ___________ percent (negative amount should be indicated with a minus sign, round answer to 2 decimal places)

1. Suppose you bought a 6 percent coupon bond one year ago for $890. The bond sells for $915 today.

(a)

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

interest earned = 6%of 1000 = $60;

earnings after selling = 915-890 = $ 25

Total dollar return ____$85_________ (round to 2 decimal places)

(b)

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

Nominal rate of return __= (85/890)*100 = 9.55%________ percent (round to 2 decimal places)

(c)

If the inflation rate last year was 12 percent, what was your total real rate of return on this investment?

Real rate of return ____9.55 - 12=-2.44%_______ percent (negative amount should be indicated with a minus sign, round answer to 2 decimal places)

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