Consider two $1,000 face-value coupon bonds: one a two-year bond and one a three-year bond.
Each bond is priced at par in period ‘t’.
Both carry a coupon rate of 10%.
You will sell each bond in period ‘t+1’, but when you sell the bonds interest rates in the economy have increased to 15%. If the overall price level increased by 2% from year ‘t’ to year ‘t+1’ solve for the real one-period return for each bond. Show your work.