Question

You bought one of Great White Shark Repellant Co.’s 9 percent coupon bonds one year ago for $800. These bonds make annual payments and mature 10 years from now. Suppose you decide to sell your bonds today, when the required return on the bonds is 11 percent. If the inflation rate was 3 percent over the past year, what was your total real return on investment?

Answer #1

Price of the bond = Present value of the annual coupon and face value discounted at required return

Annual Coupon = 9%*1000 = 90

Face Value = 1000

Number of payments = 10

Price = 90/(1+0.11)^1 + 90/(1+0.11)^2 +90/(1+0.11)^3 +90/(1+0.11)^4 +90/(1+0.11)^5 +90/(1+0.11)^6 +90/(1+0.11)^7 + ............ 90/(1+0.11)^10 + 1000/(1+0.11)^10

Price = 882.22

Total Return = ((882.22 + 90 - 800) /800 ) *100 = 21.53%

Total Real Return = [ (1+total return) / (1 + inflation) ] - 1 =
[ (1+0.2153) / (1 + 0.03) ] - 1 **= 17.99%
Answer**

You bought one of Great White Shark Repellant Co.’s 9 percent
coupon bonds one year ago for $770. These bonds make annual
payments and mature 14 years from now. Suppose you decide to sell
your bonds today, when the required return on the bonds is 12
percent. If the inflation rate was 3.6 percent over the past year,
what was your total real return on investment?

You bought one of Great White Shark Repellant Co.’s 9 percent
coupon bonds one year ago for $780. These bonds make annual
payments and mature 12 years from now. Suppose you decide to sell
your bonds today, when the required return on the bonds is 10
percent. If the inflation rate was 3.1 percent over the past year,
what was your total real return on investment?

You bought one of Great White Shark Repellant Co.’s 8 percent
coupon bonds one year ago for $780. These bonds make annual
payments and mature 6 years from now. Suppose you decide to sell
your bonds today, when the required return on the bonds is 12
percent. If the inflation rate was 3.2 percent over the past year,
what was your total real return on investment?

You bought one of Great White Shark Repellant Co.’s 10 percent
coupon bonds one year ago for $800. These bonds make annual
payments and mature 11 years from now. Suppose you decide to sell
your bonds today, when the required return on the bonds is 11
percent. If the inflation rate was 3.3 percent over the past year,
what was your total real return on investment?
Multiple Choice
a) 26.88%
b) 34.02%
c) 25.70%
d) 25.60%
e) 13.50%

You bought one of Great White Shark Repellant Co.’s 8 percent
coupon bonds one year ago for $760. These bonds make annual
payments and mature 14 years from now. Suppose you decide to sell
your bonds today, when the required return on the bonds is 12
percent. If the inflation rate was 3.8 percent over the past year,
what was your total real return on investment?
Multiple Choice
-6.85%
3.39%
3.46%
11.29%
3.29%

You bought one of Great White Shark Repellant Co.’s 10 percent
coupon bonds one year ago for $770. These bonds make annual
payments and mature 9 years from now. Suppose you decide to sell
your bonds today, when the required return on the bonds is 13
percent. If the inflation rate was 3.8 percent over the past year,
what was your total real return on investment?
Multiple Choice
5.85%
18.47%
18.37%
19.28%
27.53%

You bought one of Great White Shark Repellant Co.’s 10 percent
coupon bonds one year ago for $790. These bonds make annual
payments and mature 7 years from now. Suppose you decide to sell
your bonds today, when the required return on the bonds is 11
percent. If the inflation rate was 3.5 percent over the past year,
what was your total real return on investment?
Multiple Choice
30.21%
28.87%
28.77%
37.94%
16.54%

You bought one of Great White Shark Repellant Co.’s 8 percent
coupon bonds one year ago for $770. These bonds make annual
payments and mature 9 years from now. Suppose you decide to sell
your bonds today, when the required return on the bonds is 11
percent. If the inflation rate was 3.3 percent over the past year,
what was your total real return on investment?
4.84%
15.64%
14.90%
15.00%
22.60%

You bought one of Great White Shark Repellant Co.’s 10 percent
coupon bonds one year ago for $760. These bonds make annual
payments and mature 6 years from now. Suppose you decide to sell
your bonds today, when the required return on the bonds is 12
percent. If the inflation rate was 3.7 percent over the past year,
what was your total real return on investment?
Answer Choices (Please show calculations):
38.87%
29.14%
16.45%
29.24%
30.60%

You bought one of Mastadon Manufacturing Co.’s 8.6 percent
coupon bonds one year ago for $1,046. These bonds make annual
payments, mature fifteen years from now, and have a par value of
$1,000. Suppose you decide to sell your bonds today, when the
required return on the bonds is 8 percent. If the inflation rate
was 3.0 percent over the past year, what would be your total real
return on the investment?

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