Question

What is the rate of return for an investor who pays $1,054.47 for a 3-year bond with an annual coupon payment of 6.5% and sells the bond 1 year later for $1,037.19?What is the rate of return for an investor who pays $1,054.47 for a 3-year bond with an annual coupon payment of 6.5% and sells the bond 1 year later for $1,037.19?

Answer 1

4.53%

Explanation:

We are told that:

From the question, we have a 6.5 % coupon

Hence = 6.5 × $10

= $65

Price of the bond one year later = $1,037.19

$1,054.47 - $1,037.19

= $17.28

Rate of Return

= ($65.00 - $17.28)/$1,054.47

47.72 ÷ 1054.47 = 0.045254962

0.045254962 × 100 =

4.5254962 %

Approximately = 4.53%