Calculate the nominal and real returns as well as the nominal and real risk premiums for...
Calculate the nominal and real returns as well as the nominal and real risk premiums for the following corporate bond investment: Purchased for $940 one year ago, 4% coupon rate, sold for $994. The inflation rate was 5.0% and T-bills returned 6%
Homework Answers
Sol)
Considering face value of $1000
Nominal rate of return = (coupon interest + Bond appreciation)/(beginning price) *100
= (40 + 54)/(940) *100
= 94/940 *100
= 10%
Real rate of return = ((1+ nominal rate)/(1+inflation))-1
= (1.10/1.05) -1
=4.76%
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Calculate the nominal and real returns as well as the nominal
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