Suppose you bought a 7.4 percent (annually) coupon bond one year ago for $900. T

Question

Suppose you bought a 7.4 percent (annually) coupon bond one year ago for $900. The bond sells for $940 today. (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16))

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?

           Nominal rate of return

If the inflation rate last year was 2 percent, what was your total real rate of return on this investment?

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?

           Nominal rate of return

If the inflation rate last year was 2 percent, what was your total real rate of return on this investment?

Explanation / Answer

dollar return=[(coupon +final value)-intial]

coupon=7.4%*1000=74

=(74+940)-900

=$114

rate of return=[(coupon +final value)/intial]-1

=12.67%

c)(1+nominal)=(1+real)*(1+inflation)

(1+12.67%)=(1+x)*(1+2%)

x=9.39%

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