You purchased a bond one year ago for $839.67 and just received the annual coupon of $81. You sell the bond today for $829.31. What is your real return if inflation was 5%?

Name: You purchased a bond one year ago for $839.67 and just received the annual coupon of $81. You sell the bond today for $829.31. What is your real return if inflation was 5%?
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Question

Quizplus · Accepted Answer

The nominal return is calculated as: [(829.31 - 839.67 + 81) / 839.67] = 8.80%. The real return is then: [(1 + 0.0880) / (1 + 0.05)] - 1 = 3.41%.

You Purchased a Bond One Year Ago for $839