Question

Suppose you bought a bond with an annual coupon of 6 percent one year ago for $964. The bond sells for $938 today. If the inflation rate last year was 3 percent and the face value of the bond is $1000, what was your total real rate of return on this investment? (Negative amount should be indicated by a minus sign. Enter your answer as a percentage, omit the "%" sign in your response, and round your answer to 2 decimal places. For example, 0.12345 or 12.345% should be entered as 12.35)

Answer #1

Face Value = $1,000

Annual Coupon Rate = 6%

Annual Coupon = 6% * $1,000

Annual Coupon = $60

Purchase Price = $964

Selling Price = $938

Nominal Rate of Return = (Selling Price + Annual Coupon -
Purchase Price) / Purchase Price

Nominal Rate of Return = ($938 + $60 - $964) / $964

Nominal Rate of Return = 0.0353 or 3.53%

Real Rate of Return = (Nominal Rate of Return - Inflation Rate)
/ (1 + Inflation Rate)

Real Rate of Return = (0.0353 - 0.0300) / (1 + 0.0300)

Real Rate of Return = 0.0053 / 1.0300

Real Rate of Return = 0.0051 or 0.51%

So, your real rate of return on this investment is 0.51%

Q) 7A
Himiny's Cricket Farm Issued a 26-year, 11 percent semiannual
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calculations. Enter your answer as a percentage, omit the "%" sign
in your response, and round your answer to 2 decimal places. For
example, 0.12345 or 12.345% should be entered as
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Q) 7B
Himiny's Cricket...

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