One Year Ago, You Bought a Bond for $10,000

question 15

Essay

One year ago, you bought a bond for $10,000.You received interest of $400 at the end of the year, as well as your
$10,000 principal.If the inflation rate over the last year was 5 percent, calculate your real return.Show your work.

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Definitions:

Semiannual Interest

Interest that is calculated and paid twice a year, commonly used in bonds and other fixed-income investments.

Par Value

The nominal or face value of a stock or bond, representing the minimum price at which the security can be sold upon its initial offering and having legal ramifications.

Bonds

Long-term debt securities issued by corporations or governments, promising to pay the holder a specified amount of interest over a set period and to repay the principal at maturity.

General Journal Entry

An entry in the general journal that records financial transactions in the order they occur, detailing debit and credit entries for accounting.