Suppose you bought a bond with a coupon rate of 7.5 percent one year ago for $89

Question

Suppose you bought a bond with a coupon rate of 7.5 percent one year ago for $898. The bond sells for $928 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 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

Total Dollar return= Bond price appreciation + coupon received

= (928-898) + (7.5%*1000) = 30+ 75= 105

Total Nominal Return= 105/898=11.69%

Real Rate of return= Nominal Rate – Inflation= 11.69-4= 7.69%

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