Total real return
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Calculating Investment Return You bought one of Bergen Manufacturing Co.'s 8% coupon bonds one year ago for $1,028.50. These bonds make annual payments and mature six years from now. Suppose you decide to sell your bonds today, when the required return on the bonds is 7%. If the inflation rate was 4.8% over the past year, what would be your total real return on the investment?
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Solution calculates total real return on the investment in bonds.
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Calculating Investment Return You bought one of Bergen Manufacturing Co.'s 8% cupon bonds one year ago for $1,028.50. These bonds make annual payments and mature six years from now. Suppose you decide to sell your bonds today, when the required return on the bonds is 7%. If the inflation rate was 4.8% over the past year, what would be your total real return on the investment?
Step 1: Calculate the price of the bond now
To calculate the price of the bond ...
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