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Excel Finance Class 91: Period (Holding) Nominal, Real & Dollar Returns For Coupon Bond - YouTube
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welcome to finance an excel video number
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91 hey if you want to download this
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workbook for chapter 10 click on the
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link directly below the video and scroll
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all the way down to the finance excel
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class section and we're talking about
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period returns and we want to look at a
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coupon bond now in this video we're
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gonna see how to calculate dollar
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returns nominal rate return and the real
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rate the real rate tells us the actual
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change in purchase power taking
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consideration of taking inflation into
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consideration now here's our situation
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we have a face value of $1000 a coupon
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rate oh that means it will give us 6%
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we're gonna have compounding periods one
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time so we get a 60 buck 6% times that
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60 buck interest payment at the end bond
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price at the beginning was this and at
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the end of the year regardless of
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whether we sell it and get this cash in
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or we're holding it right we we can
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still calculate returns all right
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what is our return for the year well
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let's first figure out our interest hey
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our face value times our coupon value
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that times that dollar returns oh that's
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the total amount so we have to say
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equals the end amount minus the begin
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amount that tells us the capital gains
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amount plus the interest in our last
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video we calculated two different rates
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of return there was a it was a stock so
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it was a dividend rate but we could
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calculate you know the interest rate but
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we already know that 6%
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plus whatever the difference there's a
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percentage there but here we're just
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gonna do total dollar returns 64 bucks
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now the nominal well we just go hey this
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is the amount in total we gained divided
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by the begin amount that will tell us
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our nominal rate that doesn't take into
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consideration inflation now let's do our
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real rate and we have to remember back
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to chapter 6 our formula our Fischer
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formula for inflation so we'll say I'm
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taking a consideration the
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between real nominal and inflation I'm
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gonna say one plus our newly calculated
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nominal divided by one plus our
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inflation now I'm shooting this in 2010
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so I have an inflation it's very loyal
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so I went ahead and put a a low
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inflation rate all right so our real
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rate that's a one plus but we really
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would like to see it as just a
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percentage change so that's just the
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change if we as we've seen many times in
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this class that would we could use that
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to multiply the 1 represents the
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principal the original amount in there
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the extra a little bit there represents
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the change all right now let's calculate
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our real dollar return well hey the
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whole point of calculating a real rate
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is so that we have a rate right so we
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can simply say hey whatever we started
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with times our real rate so we have 50
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for 35 now I'd like to check that I'm
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gonna calculate the total real value at
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the end
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oh yeah well this is just the chain so
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for the total we say 1 plus this real
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rate remember real rate tells us the
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actual change in purchasing power so in
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terms of buying stuff we increased our
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from this amount here we increase by
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this amount in terms of purchasing power
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alright so there's our total rate so to
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check this we better take the ending
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real - where we started and boom that'll
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give us the same answer these two right
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here alright so we saw how to do dollar
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returns dollar amounts the actual
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dollars you get back the nominal rate
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the real rate for a coupon bond alright
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we'll see you next video
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