Answered: Last year, you earned a rate of return…

Last year, you earned a rate of return of 13.38 percent on your bond Investments. During that time, the inflation rate was 4.5 percent. What was your real rate of return?

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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Concept explainers

Treasury Market

On-the-run securities are the most recently issued securities in the market depth and are therefore traded at some premium. The off-the-run securities are the ones issued just before the most recent ones. The on-the-run securities have a lower yield to the investor than the off-the-run securities.

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Last year, you earned a rate of return of 13.38 percent on your bond investments. During that time, the inflation rate was
4.5 percent. What was your real rate of return?

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Suppose you invest in a municipal bond that pays a yield of 9%. If your marginal tax is 29%, what is the equivalent yield on the taxable bond? (write your answer in percentage and round it to 2 decimal places)
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4. You bought a 10-year, 5% coupon bond for $1,000 and sold it 1 year later for $1,100. What is the rate of return on your investment if the bond pays interest annually? If your marginal tax rate is 30%, and 50% of capital gains are taxable, what is the after-tax rate of return on your bond investment?
Last year, you earned a real rate of return of 6 percent on your bond investments. During that time, the inflation rate was 1.5 percent. What was your approximate nominal rate of return? 7.5% 6% 4.5%
If you buy municipal bond (tax free) that cost $1,000 and will pay a 4.7% coupon every year for the next 10 years (so the maturity date is in 10 years). At maturity the bond returns the original $1,000. If there is a 2.5% annual inflation, a) what real rate of return will you receive? b) How much real $ profit did you make from the bond?
As a newly hired analyst, you are presented the following yields: 1-year 4.6%; 2-year 4.8%; 3-year 4.9%; 4-year 4.8% and 5-year 5.2%. What is the rate on a 1-year treasury Security, 4 years from now?
Please Explain Step by Step Thank you! A bond pays $12,000 per year for the next 10 years. The bond costs $108,000 now. Inflation is expected to be 6 percent over the next 10 years. Answer parts (a) and (b). a. What is the current dollar internal rate of return? Use linear interpolation with x1=1.95% and x2=2.00% to find your answer. The current dollar internal rate of return is enter your response here percent. (Type an integer or decimal rounded to two decimal places as needed.) b. What is the real internal rate of return? The real internal rate of return is enter your response here percent. (Type an integer or decimal rounded to two decimal places as needed.)
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