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    Bond returns

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    A. An AT&T bond has 10 years until maturity, a coupon rate of 8 percent, and sells for $1,100. If the AT&T bond has a yield to maturity of 8 percent 1 year from now, what will its price be?
    b. What will be the rate of return on the bond?
    c. If the inflation rate during the year is 3 percent, what is the real rate of return on the bond?

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    Solution Preview

    One year from now, there would be 9 years to maturity. The price of a bond is the present value of the interest and the principal. The interest amount is $80. Since interest is an annuity, the PV can be found using the ...

    Solution Summary

    The solution explains the calculation of bond returns and the real rate of return on the bond.

    $2.19

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