Curtis bought an 8.5% annual coupon bond at par. One year later, he sold the bond at a quoted price of 98. During the year, market interest rates rose and inﬂation was 3%. What real rate of return
Did Curtis earn on this investment?

Question

Quizplus · Accepted Answer

Curtis earned an 8.5% coupon interest, but sold the bond at a 2% loss (100 - 98). His nominal return is 8.5% - 2% = 6.5%. Adjusting for 3% inflation, the real rate of return is approximately 3.40%.

Curtis Bought an 8