Concept explainers
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.
b)
To determine: The nominal
Introduction:
The nominal rate of return refers to the rate of return on an investment before adjusting the inflation rate.
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 nominal rate of return refers to the rate of return on an investment before 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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ESSENTIALS CORPORATE FINANCE + CNCT A.
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