Suppose you had bought a 12% coupon bond one year ago for $1120. The bond sells for $1085 today.
a) assuming a $1000 face value, what was your total dollar return on this investment over the past year?
b) What was your total nominal rate of return on this investment over the past year?
c) if the inflation rate last year was 4%, what was your total real rate of return on this investment?
Solution Preview
a)
This year you'll get = Coupon Payment + Selling price now = 120 + 1085,
Note, a 12% coupon is always calculated on the face value in this case its $1000.
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Solution Summary
The solution calculates the total dollar return, nominal rate of return and total real rate of return on a bond in clearly-shown calculations.
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