Calculate the Nominal and Real Returns for the Following Corporate

question 19

Essay

Calculate the nominal and real returns for the following corporate bond investment: Purchased for $840 one year ago, 4 percent coupon rate, sold for $894.The inflation rate was 5.0 percent during the year.Would you consider this an appropriate investment if Treasury bills had yielded 6.0 percent over the same period? Why?

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Definitions:

Perfect Substitutes

Products or services that can be used in exactly the same way, to the extent that one can replace the other in consumption without affecting utility.

Right Angles

Angles that measure exactly 90 degrees.

Indifference Curves

Graphical representations used in microeconomics to show combinations of two goods that provide equal satisfaction and utility to a consumer.

Nickels

Coins in the United States and Canada valued at five cents, made of a cupronickel alloy.