Assume an investor purchased a fixed-coupon bond at a time when the bond's yield to maturity was 6.9%.Further assume the investor sold the bond prior to maturity and realized a total return of 7.1%.Which of these most likely occurred while the investor owned the bond?

Question

Quizplus · Accepted Answer

The investor realized a total return higher than the initial yield to maturity, which suggests that the bond's price increased. This is likely because new bonds with similar characteristics had lower coupon rates (6.5%), making the existing bond more attractive and increasing its price.

Assume an Investor Purchased a Fixed-Coupon Bond at a Time