Question

CAN SOMEONE EXPLAIN THIS TO ME I DONT UNDERSTAND. THE INFORMATION BELOW IS THE ACTUAL solution. I need answers to what this is a step by step process. WHy is 80+30 used

220 Exactly one year ago, you bought a standard bond with 15-ycars left to matunty for $1,020. Its annual coupon is 8%. Today the price of the bond has increased to $1,050. Assuming * 4% inflation rate, what are the nominal and real rates of return for this bond for the year? Nominal rate of return =(Interest earned + capital gain) purchase price 80 +301 1,020 = 10.78% 1 Real Rate of Return * 1+ Nominal rate of return/1+Inflation Rate 1.1078/1.041.0652 Real rate of return -6.52%

where did 1.1078/1.04 come from etc.

Answer 1

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

BOND - Microsoft Excel (Product Activation Failed) Add-Ins View - 2x Dr General a Merge & Center - $ % , Wrap Text Merge & Center 8.9 File Home Insert Page Layout Formulas Data Review % Cut Calibri -11AA = = = Ea Copy Paste Format Painter B I U - D A Clipboard Font RRS foc RURK RL RM RN $ - % Number 3 conditional contesto inser Σ AutoSum : A Fill Sort & 2 Clear Filter Editing Formatting as Table Styles Styles Find & Select Alignment Cells RO RP RQ RR RS RT RV RV RW R X RS Nm + BOND PAYS COUPON EVERY YEAR SO COUPON RECEIVED = 1000 X 8% = 80 THIS IS YOUR INCOME NOW YOU BOND BOND AT 1020 AND SOLD AT 1050 SO YOUR CAPITAL GAIN = 1050-1020 = 30 009 SO YOUR TOTAL INCOME = 80 + 30 = SO YOUR HOLDING PERIOD RETURN = [NOMINAL RATE OF RETURN ] 110 110/1020 = 10.78% 12 13 14 15 NOW REAL RATE OF RETURN = (1+ NOMINAL RATE)/(1 + INFLATION RATE) - 1 REAL RATE OF RETURN = (1+0.1078)/(1+0.04) - 1 REAL RATE OF RETURN = 0.06519 REAL RATE OF RETURN = 6.52% 16 17 18 19 20 H Rea Sheet2 AFN BANKING NOTE 51 53 CLEAN PRICE 510 BIDDING, UNDERWRITING EUAC AW LIFELP, IP, MRP, INFLATION WARRANT refund I YIELD SPOT ferences 54 55 56 I BOJ 130% H a é o . E W X 2 DIAS DEW9 ..* 4 ENG 06:31