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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 Summary

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

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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 ...

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