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24 November, 18:57

Assume that you purchased a $1000 par value bond for $960. The bond pays 10% coupon annually. You sold the bond a year later for $1,040, right after you received the bond's annual interest payment. The bond was yielding 11.0% at the time of purchase and 9.5% at the time of sale. Calculate your annual realized rate of return on this investment. (a) 4.0%

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  1. 24 November, 20:25
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    Annual realized rate of return is 18.75%

    Explanation:

    Bond Purchase Price = $960

    Bond selling Price = $1040

    Gain from bond price appreciation = $1040 - $960 = $80

    Coupon received = 10% of $1000 = $100

    So, total return = $100 + $80 = $180

    So, Annual realized return = 180/960 = 0.1875 = 18.75%
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Home » Business » Assume that you purchased a $1000 par value bond for $960. The bond pays 10% coupon annually. You sold the bond a year later for $1,040, right after you received the bond's annual interest payment. The bond was yielding 11.
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