Question

A bond increases in price from $963.80 to $1,380.50 and pays a coupon of $21.875 during the same period. what is the rate of return?

Answer 1

inal answer:

The bond's rate of return is found by totaling the price increase and coupon payment, and then dividing by the original price, yielding an approximate return of 47.5%.

Step-by-step explanation:

The rate of return on the bond is the total percentage increase in value from the purchase price to the final price, including any coupon payments received during the period. To calculate the rate of return:

1. Calculate the total return, which includes the change in bond price plus the coupon payment: $(1380.50 - 963.80) + $21.875.
2. Divide the total return by the original price to find the rate of return: (Total return / $963.80).
3. The direct answer in 2 lines: The rate of return is approximately 47.5%, calculated by dividing the total gain of $(1380.50 - 963.80 + 21.875) by the original price of $963.80.