You bought one of Great White Shark Repellant Co.'s 10 percent coupon bonds one year ago for $815.These bonds pay annual payments,have a face value of $1,000,and mature 14 years from now.Suppose you decide to sell your bonds today when the required return on the bonds is 14 percent.The inflation rate over the past year was 3.7 percent.What was your total real return on this investment?

Question

Quizplus · Accepted Answer

Nominal return = ($759.92 - $815 + $100)/$815 = 0.0551Real return = [(1 + 0.0551)/(1 + 0.037)] - 1 = 1.75 percent

You Bought One of Great White Shark Repellant Co