You bought one of Rocky Mountain Manufacturing Co.'s 8 percent coupon bonds one year ago for $1,032.15.

Question:

You bought one of Rocky Mountain Manufacturing Co.'s 8 percent coupon bonds one year ago for $1,032.15. These bonds make annual payments and mature nine years from now. Suppose you decide to sell your bonds today, when the required return on the bonds is 7.2 percent. If the inflation rate was 3.5 percent over the past year, what would be your total real return on investment?

Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a...