Suppose you bought a bond with an annual coupon rate of 8 percent one year ago for $880. The bond sells for $910 today.
a. Assuming a $1,000 face value, what was your total dollar return on this investment over the past year?
Total dollar return = $_______
b. What was your total nominal rate of return on this investment over the past year?
Nominal rate of return = _______ %
c. If the inflation rate last year was 3 percent, what was your total real rate of return on this investment?
Real rate of return = _______ %
| a] | Total dollar return = Total interest + Increase in price = 80+(910-880) = | $ 110 |
| b] | Total nominal rate of return = 110/880 = | 12.50% |
| c] | Total real rate of return = 1.125/1.03-1 = | 9.22% |
Suppose you bought a bond with an annual coupon rate of 8 percent one year ago for $880. The bond sells for $910 today.