Calling all economic majors

So need a little bit of help for problem number 8.

On July 1, 2007 you bought a two-year U.S. government bond with a principal (face value) of $1000 and a coupon rate of 6% with coupons paid on June 30, 2008 and June 30, 2009. The principal will be repaid on June 30, 2009. The Consumer Price Index (CPI) was 110 on June 30, 2007 and 114 on June 30, 2008. You decide to sell your bond on June 30, 2008 when the interest rate on brand-new U.S. government one-year bonds was 4%. What was the actual (ex post) nominal one-year return on your bond for your one-year holding period? What was the actual (ex post) real return?

Anyone have a suggestion as to how to begin to tackle this problem?? Any suggestions/help would be great. Not sure how the consumer price index fits into this. Is it just reiterating the new 1yr bond interest rate of 4%? Or is it have something to do with inflation? Gots several ideas but nothing that seems to flow correctly.

thanks

9/14/2008 1:52:39 PM

lol I took this class with Pearce last semester....lucky that I got a B in there...good luck with that

9/18/2008 12:28:59 PM