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1. You earned 12% on your investments last year. During that time period, inflation averaged 6...

1. You earned 12% on your investments last year. During that time period, inflation averaged 6 percent. What was your real rate of return based on the Fisher formula?

2. A 10 year bond was issued three years ago. It pays 5% coupon semi-annually, and has a yield to maturity of 6%, what is the current market price of the bond?

3. A bond currently has a YTM of 8%. The bond matures in 3 years and pays interest semi-annually. The coupon rate is 7%. What is the current price of this bond?

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Answer #1

Ans 1) 5.66%

Real Rate of Return = ( 1 + Nominal Return) / (1 + Inflation Rate) - 1
                             = ( 1 + 12%) / (1 + 6%) - 1
                             = 5.66%

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