Question

Suppose you bought a bond with an annual coupon rate of 7.5 percent one year ago for $898. The bond sells for $928 today. a. Assuming a $1,000 face value, what was your total dollar return on this investment over the past year

Answer 1

Answer: $105

Step-by-step explanation:

The dollar return would be the sum of the returns (coupon) from the bond and any capital appreciation.

Coupon payment = Coupon rate * Face value

= 7.5% * 1,000

= $75

Capital appreciation = 928 - 898

= $30

Total dollar return = 75 + 30

= $105