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Bond Return

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You buy a 10% coupon bond 1 year ago for $1,060 it has a 1,000 face value and this bond sells for $1,085 today.

1. what is your total dollar return on this investment over the past year?
2. what is the total nominal rate of return over the past year?
3. if the inflation rate last year was 9%, what is your total real rate of return on this investment?

so i figured the first to be (1,085-1,060)=$25
the second i would have to find the 25 as a % out of the 1,085???
but the third i do not know what to do( and if the 2 previous ones are right)

the same for these numbers:
buy a 16% coupon bond one year ago for $1,010, the bond sells today for $1,045,
and for number three the inflation rate last year was 7 %

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Solution Summary

The solution explains how to calculate the total dollar return, total nominal return and total real return of an investment in a bond

Solution Preview

The total doller return is the dollar amount you earn during the year. This is composed of two earnings - the coupon interest and the change in the price. In ...

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