21 October, 03:40

# Suppose you bought a 6 percent coupon bond one year ago for \$920. The bond sells for \$940 today.a) Assuming a \$1000 face value, what was your total dollar return on this investment ove the past yearb) What was you total nominal rate of return on this investment over the past yearc) if the inflation last year was 3 percent, what was your total real rate of return on this investment

+1
1. 21 October, 03:43
0
1. \$80

2. 8.69%

3. 5.53%

Step-by-step explanation:

The computation is shown below:

1. Total dollar return

= Face value * interest rate + (Sale value - purchase value)

= \$1,000 * \$60 + (\$940 - \$920)

= \$60 + \$20

= \$80

2. Total nominal rate of return equal to

= {Face value * interest rate + (Sale value - purchase value) } : {Purchase value} * 100

= {\$1,000 * \$60 + (\$940 - \$920) } : {\$920} * 100

= (\$60 + \$20) : (\$920) * 100

= 8.69%

3. Total real rate of return is

= (1 + Nominal rate of return) : (1 + Inflation rate) * 100

= (1 + 8.70%) : (1 + 0.03) * 100

= 5.53%