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Show all work: The 10-year bonds of Mind Co. pay a 7% annual coupon, have a...

Show all work: The 10-year bonds of Mind Co. pay a 7% annual coupon, have a face value of $1,000, and currently trade at $897.25. The current rate of inflation is 5.5%. What is the real rate of return (exact or approximate) on these bonds?

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Answer #1

Calculating Yield to Maturity of Bond,

Using TVM Calculation,

I = [PV = -897.25, FV = 1,000, N = 10, PMT = 70]

I = 8.57%

Real Rate = (1.0857/1.055) - 1

Real Rate = 2.91%

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