a)
To determine: The dollar return from the bond.
Introduction:
Total return refers to the total income from an investment. The total income includes the periodic incomes and the increase or decrease in the value of an asset.
Dollar return refers to the return stated in dollar values. Percentage return refers to the returns stated as a percentage. Percentage returns determine the returns per one dollar of investment or per $100 worth of investment.
b)
To determine: The nominal
Introduction:
The nominal rate of return refers to the rate of
c)
To determine: The real rate of return from the bond.
Introduction:
The real rate of return refers to the rate of return on an investment after adjusting the inflation rate. The rate at which the inflation increases is the inflation rate. The Fisher effect helps to establish a relationship between the nominal rate of return, inflation, and the real rate of return.
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Fundamentals of Corporate Finance
- Suppose you bought a bond with an annual coupon rate of 4 percent one year ago for $800. The bond sells for $850 today. a. Assuming a $1,000 face value, what was your total dollar return on this investment over the past year? b. What was your total nominal rate of return on this investment over the past year? c. If the inflation rate last year was 2 percent, what was your total real rate of return on this investment?arrow_forwardA4 3 You bought one of BB Co.’s 10% coupon bonds one year ago for $1100. These bonds make annual payments, have a face value of $1000 each, and mature seven years from now. Suppose you decide to sell your bonds today, when the required return on the bonds is 8%. If the inflation rate was 3% over the past year, what would be your total real return on investment according to the Exact Fisher Formula?arrow_forwardSuppose you bought a bond with an annual coupon of 9 percent one year ago for $1,160. The bond sells for $1,210 today. Assuming a $1,000 face value, what was your total dollar return on this investment over the past year? What was your total nominal rate of return on this investment over the past year? If the inflation rate last year was 7 percent, what was your total real rate of return on this investment?arrow_forward
- Suppose you bought a $1,000 face value bond with a coupon rate of 5.6 percent one year ago. The purchase price was $987.50. You sold the bond today for $994.20. If the inflation rate last year was 2.6 percent, what was your exact real rate of return on this investment? O 4.88% O 5.32% O 3.65% O 3.78% AMoving to another question will save this response. «< Question 3 of 30arrow_forward23. Calculating Investment Returns You bought one of Elkins Manufacturing Co.'s 5.4 percent coupon bonds one year ago for $1,030. These bonds make annual payments, mature eight years from now, and have a par value of $1,000. Suppose you decide to sell your bonds today, when the required return on the bonds is 5.1 percent. If the inflation rate was 2.9 percent over the past year, what would be your total real return on the investment?arrow_forwardSuppose that you buy a two-year 8% bond at its face value. a. What will be your total nominal return over the two years if inflation is 3% in the first year and 5% in the second? b. What will be your total real return?arrow_forward
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- Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning