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You bought one of Great White Shark Repellant Co.'s 8 percent coupon bonds one year ago for $760....

Question:

You bought one of Great White Shark Repellant Co.'s 8 percent coupon bonds one year ago for $760. These bonds make annual payments and mature 12 years from now. Suppose you decide to sell your bonds today, when the required return on the bonds is 9 percent. If the inflation rate was 3.4 percent over the past year, what was your total real return on investment?

Bond Yields:

Coupon Bonds offer fixed payments at equal intervals for a set amount of time. After issue, a bond may sell for higher or lower than face value, depending on current interest rates.

Answer and Explanation:

The real return is 29.28%

We calculate this by first finding the selling price of the bond using the coupon bond calculation.

{eq}Price= CPN *...

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Learn more about this topic:

Coupon Rate: Definition, Formula & Calculation

from Economics 102: Macroeconomics

Chapter 11 / Lesson 11
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