Answer:
Dollar return is $79
Nominal rate of return is 7.77%
Real rate of return is 4.77%
Explanation:
The total return is the difference in market price plus the coupon interest received,the total dollar return is computed as follows:
Price today $1,041
price a year ago ($1,071)
Coupon interest($1000*5.5%) $55
Total dollar return $79
The nominal rate of return over the past one year is calculated thus:
Nominal rate of return =dollar return/initial price paid
dollar return is $79
initial price is $1017
nominal rate of return =$79/$1017
=7.77%
Real rate of return=Nominal rate -inflation rate
inflation rate is 3%
real rate of return=7.77%-3%
=4.77%
