Suppose you bought a bond with an annual coupon rate of 8 percent one year ago for $880. The bond sells for $910 today.

a. 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 = _______ %

c. If the inflation rate last year was 3 percent, what was your total real rate of return on this investment?

Real rate of return = _______ %

Solutions

Expert Solution

a]	Total dollar return = Total interest + Increase in price = 80+(910-880) =	$ 110
b]	Total nominal rate of return = 110/880 =	12.50%
c]	Total real rate of return = 1.125/1.03-1 =	9.22%

jeff jeffy answered 2 years ago

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