Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Numerical Methods In Finance

Authors: René Carmona, Pierre Del Moral, Peng Hu, Nadia Oudjane

2012th Edition

3642257453, 978-3642257452

More Books

Students also viewed these Finance questions

Question

Explain the strength of acid and alkali solutions with examples

Answered: 1 week ago

Question

Introduce and define metals and nonmetals and explain with examples

Answered: 1 week ago