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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