One year ago, you bought a bond for $10,000. You received interest of $400 at the end of the year, as well as your $10,000 principal. If the inflation rate over the last year was five percent, calculate the real return. Show your work.

To calculate the real return, we need to adjust the nominal return (the total interest received) for inflation. Here's how you can do it step by step:

1. Calculate the inflation-adjusted value of the principal:
Inflation-adjusted principal = Principal / (1 + inflation rate)
In this case, the inflation rate is five percent, so the inflation-adjusted principal = $10,000 / (1 + 0.05) = $9,523.81

2. Calculate the inflation-adjusted interest:
Inflation-adjusted interest = Nominal interest - (Nominal interest * inflation rate)
In this case, the nominal interest is $400, so the inflation-adjusted interest = $400 - ($400 * 0.05) = $380

3. Calculate the real return:
Real return = Inflation-adjusted principal + Inflation-adjusted interest - Principal
Real return = $9,523.81 + $380 - $10,000 = $-96.19

Therefore, the real return on the bond is -$96.19. This means the investor experienced a loss in purchasing power due to the inflation rate being higher than the nominal return, resulting in a negative real return.