Calculating Return for a Year-Old 12% Coupon Bond
Suppose you had bought a 12% coupon bond one year ago for $1120. The bond sells for $1085 today.
a) assuming a $1000 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 4%, what was your total real rate of return on this investment?
...l Payoff = $1205
Purchase price = $1120
Therefore, dollar return = 1205 - 1120 = $85.
Nominal rate of return = Dollar Return/Purchase Price = 85/1120 ...