If a 7% coupon (semiannual) bond purchased at par sells 2 years later for $990, what is the realized rate of return (annualized)?

Question

Quizplus · Accepted Answer

The realized rate of return can be calculated by considering the coupon payments received and the change in price. The bond pays $35 every six months (7% annual coupon rate), and after 2 years, the bond is sold for $990. The total cash inflow is $70 (from coupons) + $990 (sale price) = $1060. The initial investment was $1000. The realized rate of return is calculated using the formula for annualized return, which results in approximately 6.52%.

If a 7% Coupon (Semiannual) Bond Purchased at Par Sells