You purchased a bond on January 1, 2002 for $839.67. The bond has a $1,000 face value, an 8% annual coupon, and can be sold for $822.33 on December 31, 2002. What is your percentage return on investment for the year?

Question

Quizplus · Accepted Answer

The total return on investment includes both the interest received and the capital gain or loss. The bond pays an 8% annual coupon on its $1,000 face value, which equals $80 in interest. The capital loss is the difference between the purchase price ($839.67) and the selling price ($822.33), which is -$17.34. The total return is the sum of the interest received and the capital loss, which is $80 - $17.34 = $62.66. The percentage return on investment is calculated as (total return / purchase price) * 100 = ($62.66 / $839.67) * 100 = 7.5%.

You Purchased a Bond on January 1, 2002 for $839