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Suppose that you buy a 1-year maturity bond with a coupon of 8.8% paid annually. If...

Suppose that you buy a 1-year maturity bond with a coupon of 8.8% paid annually. If you buy the bond at its face value, what real rate of return will you earn if the inflation rate is 4%? 6%? 10.70%? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Negative amount should be indicated by a minus sign.)

Real Rate of Return

4% ----> ?%

6% ---> ?%

10.70% ----> ?%

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Answer #1
Real return = ((1+nominal return)/(1+inflation rate)-1)*100
Real return=((1+0.088)/(1+0.04)-1)*100
Real return = 4.62
Real return = ((1+nominal return)/(1+inflation rate)-1)*100
Real return=((1+0.088)/(1+0.06)-1)*100
Real return = 2.64
Real return = ((1+nominal return)/(1+inflation rate)-1)*100
Real return=((1+0.088)/(1+0.107)-1)*100
Real return = -1.72
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