Total nominal return and total real return.

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Answer 1

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Chapter 3, Problem 28PS

a)

Summary Introduction

To determine: Total nominal return and total real return.

b)

Summary Introduction

To determine: Total nominal return and total real return if the bonds are TIPS.

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Suppose that you buy a TIPS (inflation-indexed) bond with a 1-year maturity and a coupon of 2% paid annually. Assume you buy the bond at its face value of $1,000, and the inflation rate is 10%. a. What will be your cash flow at the end of the year? (Do not round intermediate calculations. Round your answer to 2 decimal places.) b. What will be your real return? c. What will be your nominal return? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

Suppose that you buy a two-year 7.3% bond at its face value. a-1. What will be your total nominal return over the two years if inflation is 2.3% in the first year and 4.3% in the second? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Nominal return a-2. What will be your real return? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Real return % % Real return Nominal return b. Now suppose that the bond is a TIPS. What will be your total 2-year real and nominal returns? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) 1%

Suppose you purchase a 10-year bond with 5% annual coupons. You hold the bond for four years and sell it immediately after receiving the fourth coupon. If the bond's yield to maturity was 3.49% when you purchased and sold the bond, a. What cash flows will you pay and receive from your investment in the bond per $100 face value? b. What is the internal rate of return of your investment? Note: Assume annual compounding. a. What cash flows will you pay and receive from your investment in the bond per $100 face value? The cash flow at time 1-3 is $ (Round to the nearest cent. Enter a cash outflow as a negative number.)

Answer 2

Question

Chapter 3, Problem 28PS

a)

Summary Introduction

To determine: Total nominal return and total real return.

b)

Summary Introduction

To determine: Total nominal return and total real return if the bonds are TIPS.

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Answer 3

Question

Chapter 3, Problem 28PS

a)

Summary Introduction

To determine: Total nominal return and total real return.

b)

Summary Introduction

To determine: Total nominal return and total real return if the bonds are TIPS.

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Answer 4

Question

Chapter 3, Problem 28PS

a)

Summary Introduction

To determine: Total nominal return and total real return.

b)

Summary Introduction

To determine: Total nominal return and total real return if the bonds are TIPS.

Expert Solution & Answer

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Answer 5

Chapter 3, Problem 28PS

a)

Summary Introduction

To determine: Total nominal return and total real return.

b)

Summary Introduction

To determine: Total nominal return and total real return if the bonds are TIPS.

Answer 6

Chapter 3, Problem 28PS

a)

Summary Introduction

To determine: Total nominal return and total real return.

Answer 7

Chapter 3, Problem 28PS

a)

Summary Introduction

To determine: Total nominal return and total real return.

Answer 8

b)

Summary Introduction

To determine: Total nominal return and total real return if the bonds are TIPS.

Answer 9

b)

Summary Introduction

To determine: Total nominal return and total real return if the bonds are TIPS.

Answer 10

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Answer 11

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Answer 12

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Answer 13

Ch. 3 - (PRICE) In February 2009, Treasury 8.5s of 2020...Ch. 3 - (YLD) On the same day, Treasury 3.5s of 2018 were...Ch. 3 - (DURATION) What was the duration of the Treasury...Ch. 3 - (MDURATION) What was the modified duration of the...Ch. 3 - Prob. 1PS Ch. 3 - Bond prices and yields The following statements...Ch. 3 - Prob. 3PS Ch. 3 - Bond prices and yields A 10-year German government...Ch. 3 - Bond prices and yields Construct some simple...Ch. 3 - Spot interest rates and yields Which comes first...

Total nominal return and total real return.

Solution Summary: The author determines total nominal return and total real return if the bonds are TIPS.

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To determine: Total nominal return and total real return.

To determine: Total nominal return and total real return if the bonds are TIPS.

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