One year ago, you purchased a 7 percent coupon bond with a face value of $1,000 when it was selling for 102.5 percent of par.Today, you sold this bond for 104 percent of par.What is your total dollar return on this investment?

Question

Quizplus · Accepted Answer

The total dollar return includes both the coupon payment and the capital gain. The bond was purchased for $1,025 (102.5% of $1,000) and sold for $1,040 (104% of $1,000). The coupon payment is $70 (7% of $1,000). The capital gain is $15 ($1,040 - $1,025). Therefore, the total dollar return is $70 + $15 = $85.

One Year Ago, You Purchased a 7 Percent Coupon Bond