At the beginning of the year an investor pays $1,100 for a bond with a face value of $1,000. The bond pays a coupon payment of $60, and the investor sells it for $1,150 at the end of the year. The return is
A) 5.5 percent.
B) 6.0 percent.
C) 10.0 percent.
D) 10.5 percent.

Question

Quizplus · Accepted Answer

The total return includes the coupon payment and the capital gain. The coupon payment is $60, and the capital gain is $1,150 - $1,100 = $50. So, the total return is $60 + $50 = $110. The return as a percentage of the initial investment is $110 / $1,100 = 10%.

At the Beginning of the Year an Investor Pays $1,100