You purchased an annual interest coupon bond one year ago that had 9 years remaining to maturity at that time.The coupon interest rate was 10% and the par value was $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 yield to maturity continued to be 8%,your annual total rate of return on holding the bond for that year would have been _________.

Question

Quizplus · Accepted Answer

The correct answer is A.The annual total rate of return on holding the bond for that year would have been 8.00%. This is because the yield to maturity is 8%, and the bond was purchased at a discount. The discount is the difference between the purchase price and the par value. The discount is amortized over the life of the bond, and the amortization is added to the coupon interest payments to arrive at the total return.

You Purchased an Annual Interest Coupon Bond One Year Ago