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Tappan Manufacturing Co.'s bonds- real & nominal return

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You bought one of Tappan Manufacturing Co.'s 9% coupon bonds one year ago for $1,002.50. These bonds make annual payments and mature six years from now. Suppose you decided to sell your bonds today, when the required return on the bonds is 10%. If the inflation rate was 6.5% over the past year, what would be your total real return on investment?

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Solution Summary

This solutions shows the steps to calculate the nominal and real rate of return on bonds.

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Please see the attached excel file for solution

Expected return 10%

Year Discount factor for 10% Cash flow Discounted cash ...

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