Genie Would Like to Receive an Exact Real Rate of Return

question 32

Essay

Genie would like to receive an exact real rate of return of 5 percent per year on a bond investment at a time when the expected inflation rate is 4.5 percent.
A) What nominal rate of return would Genie expect to receive on a bond investment?
B) How much would Genie be willing to pay for a bond maturing in five years if it pays a semi-annual coupon of 8 percent?

• A) What nominal rate of return would Genie expect to receive on a bond investment?
• B) How much would Genie be willing to pay for a bond maturing in five years if it pays a semi-annual coupon of 8 percent?

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Definitions:

Remanded

When an appellate court sends a case back to a lower court for further proceedings or a new trial, usually with specific instructions.

Reversed

When a decision or process is turned in the opposite direction or changed to the opposite status.

Affirmed

A legal term indicating that a decision made by a lower court has been upheld by an appellate court.

Defendant's Assets

The property or holdings of an individual or entity being sued, which may be subject to claims or settlement in a lawsuit.