a) Assume you purchase a bond for $900. The bond pays $30 interest every six months. You sell the bond after 18 months for $918. Calculate the following: 

a. Income 

b. Capital gain or loss 

c. Total return in dollars and as a percentage of the original investment

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b) Given a real rate of interest of 3.5%, an expected inflation premium of 2.5%, and risk premiums for investments A and B of 6% and 7.5%, respectively, find the following:

a. The risk—free rate of return, rf 

b. The required returns for investments A and B

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c) You are considering purchasing a bond that pays annual interest of $70 per $1,000 of par value. The bond matures in 1 year, when you will collect the par value and the interest payment. If you can purchase this bond for $940, what is the holding period return?

Answer rating: 100% (QA)

a Lets calculate the items for the bond a Income The bond pays 30 in interest every six months so ov... View the full answer