Answer:
The bond's real return for the year is 4.54%
Explanation:
In order to calculate the bond's real return for the year we would have to calculate first the nominal rate of return as follows:
nominal rate of return=(price end+coupon-price beginning/price beginning)*100
nominal rate of return=(price end+coupon rate*par value-price beginning/price beginning)*100
nominal rate of return=($1,981.96+0.058*$2,000-$1,946.47/$1,946.47)*100
nominal rate of return=7.78%
Therefore, in order to calculate the bond's real return for the year we would have to use the following formula:
(1+real rate of return)*(1+inflation)=(1+nominal rate of return)
(1+real rate of return)=(1+nominal rate of return)/(1+inflation)
(1+real rate of return)=(1+0.078)/(1+0.031)
(1+real rate of return)=1.0454
real rate of return=4.54%
The bond's real return for the year is 4.54%
