Question
On January 1, 2019 you bought a new, two-year U.S. government bond with a principal (face value) and price of $1000 and a coupon rate
On January 1, 2019 you bought a new, two-year U.S. government bond with a principal (face value) and price of $1000 and a coupon rate of 4% with coupons paid on December 31, 2019 and December 31, 2020. The principal will be repaid on December 31, 2020. The Consumer Price Index (CPI) was 250 on January 1, 2019 and 255 on January 1, 2020. You decide to sell your bond on January 1, 2020 when the interest rate on brand-new U.S. government one-year bonds is 2%. What was the actual (ex post) nominal one-year return on your bond for your one-year holding period? What was the actual (ex post) real return?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started