You are considering purchasing a $1,000 bond with a coupon rate of 9.5%, interest payable annually. If the current inflation rate is 4% per year, which will continue in the foreseeable future, what would be the real rate of return if you sold the bond at $1,080 after 2 years?

Related MCQs

• You are considering purchasing a $1,000 bond with a coupon rate of 9.5%, interest payable annually. If the current inflation rate is 4% per year, which will continue in the foreseeable future, what would be the real rate of return if you sold the bond at $1,080 after 2 years?
• You are considering purchasing a $1,000 bond with a coupon rate of 9.5%, interest payable annually. If the current inflation rate is 4% per year, which will continue in the foreseeable future, what would be the real rate of return if you sold the bond at $1,080 after 2 years?
• A couple wants to save for their daughter’s college expense. The daughter will enter college 8 years from now and she will need $40,000, $41,000, $42,000 and $43,000 in actual dollars for 4 school years. Assume that these college payments will be made at the beginning of the school year. The future general inflation rate is estimated to be 6% per year and the annual inflation-free interest rate is 5%. What is the equal amount, in actual dollars, the couple must save each year until their daughter goes to college (for 8 years)?
• A couple wants to save for their daughter’s college expenses. The daughter will enter college 8 years from now and she will need $40,000, $41,000, $42,000, and $43,000 in actual dollars for 4 school years. Assume that these college payments will be made at the beginning of the school year. The future general inflation rate is estimated to be 6% per year and the annual inflation-free interest rate is 5%. What is the equal amount, in actual dollars, the couple must save each year until their daughter goes to college (for 8 years)?
• A couple wants to save for their daughter’s college expense. The daughter will enter college 8 years from now and she will need $40,000, $41,000, $42,000 and $43,000 in actual dollars for 4 school years. Assume that these college payments will be made at the beginning of the school year. The future general inflation rate is estimated to be 6% per year and the annual inflation-free interest rate is 5%. What is the equal amount, in actual dollars, the couple must save each year until their daughter goes to college (for 8 years)?
• A manufacturing company is considering the purchase of a new CNC lathe, which will cost $60,000 and has an annual maintenance cost of $8,000. A few parts in the lathe need to be replaced once every 5 years to enable smooth running of the lathe. This would cost an additional $20,000 (once every 5 years). Assuming that the lathe would last 15 years under these conditions, what is the total equivalent cost (present value) of this investment at an interest rate of 12%? (Assume that there will be no appreciable salvage value at the end of 15 years.)
• A manufacturing company is considering the purchase of a new CNC lathe, which will cost $60,000 and has an annual maintenance cost of $8,000. A few parts in the lathe need to be replaced once every 5 years to enable smooth running of the lathe. This would cost an additional $20,000 (once every 5 years). Assuming that the lathe would last 15 years under these conditions, what is the total equivalent cost (present value) of this investment at an interest rate of 12%? (Assume that there will be no appreciable salvage value at the end of 15 years.)
• Consider a machine that costs $20,000 and has a five-year useful life.At the end of the five years, it can be sold for $4,000 after all tax adjustments have been factored in. If the firm could earn an after-tax revenue of $4,400 per year with this machine, should it be purchased at an interest rate of 10%? (All benefits and costs associated with the machine are accounted for in these figures.)
• Consider a machine that costs $20,000 and has a five-year useful life.At the end of the five years, it can be sold for $4,000 after all tax adjustments have been factored in. If the firm could earn an after-tax revenue of $4,400 per year with this machine, should it be purchased at an interest rate of 10%? (All benefits and costs associated with the machine are accounted for in these figures.)
• Consider a machine that costs $20,000 and has a five-year useful life.At the end of the five years, it can be sold for $4,000 after all tax adjustments have been factored in. If the firm could earn an after-tax revenue of $4,400 per year with this machine, should it be purchased at an interest rate of 10%? (All benefits and costs associated with the machine are accounted for in these figures.)