Question

33 Suppose you bought a bond with an annual coupon rate of 79 percent one year ago for $902. The bond sells for $936 today a. Assuming a $1,000 face value, what was your total dollar return on this investment over the past year? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) b. What was your total nominal rate of return on this investment over the past year? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) c. If the inflation rate last year was 4.4 percent, what was your total real rate of return on this investment? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g.. 32.16.) 10 points eBook Hint a. Total dollar return References b. Total nominal rate of return c. Total real rate of return |৫|

Answer 1

Question - (a)

Coupon payment = 1000 * 7.9% = 79

Capital gain = 936 - 902 = 34

Total dollar return over one year period = 79 + 34 = 113

Question - (b)

Total nominal rate of return = Dollar return / Purchase price * 100 = 113 / 902 * 100 = 12.53 %

Question - (c)

Real rate of return = ( 1 + nominal rate ) / ( 1 + Inflation rate ) - 1

= ( 1.1253 / 1.044 ) - 1

= 0.0779 ........... 7.79 %