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Suppose that you buy a 1-year maturity bond with a coupon of 7.2% paid annually. If you buy the bond at its face value, what real rate of return will you earn if the inflation rate is 2%? 4%? 8.30%? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Negative amount should be indicated by a minus sign.)

Respuesta :

Answer:

Explanation:

The Real rate of return would be calculated as:

= (1 + Coupon rate)/(1 + Inflation rate) - 1

a. When inflation rate = 2%

Coupon rate = 7.2%

= (1+7.2%) / (1+2%) -1

= (1 + 0.072) / (1 + 0.02) - 1

= 5.10%

b. When inflation rate = 4%

= (1+7.2%) / (1+4%) -1

= (1 + 0.072) / (1 + 0.04) - 1

= 3.08%

3) When inflation rate = 8.30%

= (1+7.2%) / (1+8.3%) -1

= (1 + 0.072) / (1 + 0.083) - 1

= -1.02%

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