Ask Question
28 October, 06:55

You bought a bond five years ago for $804 per bond. The bond is now selling for $770. It also paid $55 in interest per year, which you reinvested in the bond. Calculate the realized rate of return earned on this bond.

+2
Answers (1)
  1. 28 October, 10:23
    0
    Realized rate of return earned on this bond is 2.61%

    Explanation:

    Interest Paid per year = $55

    Face / Purchase Value = $804

    Current Selling price = $770

    Coupon rate / Interest rate per year = ($55 / $804) x 100

    Coupon rate / Interest rate per year = 6.84%

    Return on sale of Bond = $770 - $804 = - $34

    Return on sale of Bond (Percent) = (-$34 / 804) x 100 = - 4.23%

    Realized rate of return = Coupon Interest rate + Return on Sale

    Realized rate of return = 6.84% + (-4.23%) = 2.61%
Know the Answer?
Not Sure About the Answer?
Get an answer to your question ✅ “You bought a bond five years ago for $804 per bond. The bond is now selling for $770. It also paid $55 in interest per year, which you ...” in 📙 Business if there is no answer or all answers are wrong, use a search bar and try to find the answer among similar questions.
Search for Other Answers