You purchased an annual-interest coupon bond one year ago with six years remaining to maturity at the time of purchase. The coupon interest rate is 10%, and par value is $1,000. At the time you purchased the bond, the yield to maturity was 8%. If you sold the bond after receiving the first interest payment and the bond's yield to maturity had changed to 7%, your annual total rate of return on holding the bond for that year would have been

Question

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The bond's price increased due to the decrease in yield to maturity from 8% to 7%, resulting in a capital gain. Combined with the coupon payment, this results in an annual total rate of return of 11.95%.

You Purchased an Annual-Interest Coupon Bond One Year Ago with Six