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olga55 [171]
3 years ago
7

A bond par value is $1,000 and the coupon rate is 6.3 percent. The bond price was $946.86 at the beginning of the year and $984.

56 at the end of the year. The inflation rate for the year was 2.1 percent. What was the bond's real return for the year
Business
1 answer:
a_sh-v [17]3 years ago
5 0

Answer:

8.36%

Explanation:

The computation of the real rate of return is given below:

Coupon amount = $1,000 × 6.3% = $63

Return on price is

= $984.56 - 946.86

= $37.7

Now

Nominal rate of return =( (63 + 37.7) ÷ 946.86 ) × 100

= 10.64%

And, finally  

Real rate of return = (1+ nominal return) ÷ (1+inflation) - 1

= (1.1064 ÷ 1.021) - 1

= 8.36%

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