30. Nominal and real returns* Suppose 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? What will be your rotal real return? b. Now suppose that the bond is a TIPS. What will be your total two-year real and nominal returns?
30. Nominal and real returns* Suppose 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? What will be your rotal real return? b. Now suppose that the bond is a TIPS. What will be your total two-year real and nominal returns?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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30. Nominal and real returns* Suppose 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? What will be your rotal real return?
b. Now suppose that the bond is a TIPS. What will be your total two-year real and nominal
returns?
31. Bond ratings A bond's credit rating provides a guide to its price. In the fall of 2017 Aaa
bonds yielded 3.6% and Baa bonds yielded 4.3%. If some bad news eauses a 10% five-year
bond to be unexpectedly downrated from Aaa to Baa, what would be the effect on the bond
price? (Assume annual coupons.)
CHALLENGE
32. Bond prices and yields Write a spreadsheet program to construct a series of bond tables
that show the present value of a bond given the coupon rate, maturity, and yield to maturity.
Assume that coupon payments are semiannual and yields are compounded semiannually.
33. Price and spot interest rates Find the arbitrage opportunity(ies). Assume for simplicity that
f tho bond is $1.000
(田
A.
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