What is the total rate of return on a bond with a coupon of $55 that was purchased for $900 and sold one year later for $950?
A)5.56%
B)6.11%
C)11.67%
D)12.43%

Question

Quizplus · Accepted Answer

The annual coupon rate is $55/$900 = 6.11%. The bond was sold for $950, which includes the $55 coupon payment, so the capital gain is $950 - $900 - $55 = $-5. The total rate of return is the sum of the annual coupon rate and the capital gain/loss rate, so it is (6.11% - 5/900) = 1.67% = 11.67%

What Is the Total Rate of Return on a Bond