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23 March, 11:45

An investor buys a 5-year, 9% coupon bond for $975, holds it for 1 year, and then sells the bond for $985. What was the investor's rate of return?

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  1. 23 March, 13:14
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    hence investor's rate of return is 10.26%

    Explanation:

    Given data

    time = 5 year

    rate = 9%

    coupon bond = $975

    sell bond = $985

    at time = 1 year

    to find out

    investor's rate of return

    solution

    we will find first here Coupon payment that is

    Coupon payment = 9% of 1000 that is $90

    so that we can say that coupon bond will be

    975 = 90 / (1 + r) + $985 / (1 + r)

    solve here r we get r

    rate r = 10.26 %

    so

    hence investor's rate of return is 10.26%
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