Suppose you bought a bond with a coupon rate of 7.3 percent one year ago for $89

Question

Suppose you bought a bond with a coupon rate of 7.3 percent one year ago for $896. The bond sells for $924 today. Required: Assuming a $1,000 face value, what was your total dollar return on this investment over the past year? What was your total nominal rate of return on this investment over the past year? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).) If the inflation rate last year was 4.3 percent, what was your total real rate of return on this investment? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)

Explanation / Answer

The total dollar return is the change in price plus the coupon payment,

So Total dollar return = Current Price – Purchase price + Coupon amount=$924 – 896+ 73 = $101

b) The nominal percentage return of the bond is:

=101/896= 0.1127 or 11.27%

r= (1.1127/1.043) – 1

r= 0.0668 or 6.68%

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.