Bond CPI 36.9 108 39.8 110.3 42.4 113.6 38.1 116.1 36.4 118.4 39.2 120.9 44.6 123.2...

Bond	CPI
36.9	108
39.8	110.3
42.4	113.6
38.1	116.1
36.4	118.4
39.2	120.9
44.6	123.2
45.1	125.4

(a) Calculate the simple returns (b) Calculate the continuously compounded returns (c) Calculate the prices of the bond each year in 2013 terms (d) Calculate the real returns ( qquestion d only)

Expert Solution

(d) Calculation of Real Returns:

Bond	CPI	Return	Inflation	Real Return [(1+return) / (1+inflation) - 1]
36.9	108
39.8	110.3	0.078590786	0.021296296	5.60997722%
42.4	113.6	0.065326633	0.029918404	3.43796447%
38.1	116.1	-0.101415094	0.022007042	-12.07644678%
36.4	118.4	-0.044619423	0.019810508	-6.31783358%
39.2	120.9	0.076923077	0.021114865	5.46541961%
44.6	123.2	0.137755102	0.019023987	11.65145441%
45.1	125.4	0.011210762	0.017857143	-0.65297774%

The formulae used in the above calculation have been presented below for your reference:

ekkarill92 answered 2 years ago

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