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Calculate the Nominal and Real Returns as Well as the Nominal

Question 114

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Calculate the nominal and real returns as well as the nominal and real risk premiums for the following corporate bond investment: Purchased for $840 one year ago, 4% coupon rate, sold for $894. The inflation rate was 5.0% and T-bills returned 6%. Show your work.

Correct Answer:

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Nominal return = [$894 + (.04 × $1,000) ...

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