You purchased a 5-year annual interest coupon bond one year ago.Its coupon interest rate was 6% and its par value was $1,000.At the time you purchased the bond,the yield to maturity was 4%.If you sold the bond after receiving the first interest payment and the bond's yield to maturity had changed to 3%,your annual total rate of return on holding the bond for that year would have been approximately _________.

Question

Quizplus · Accepted Answer

The bond's price increased due to the decrease in yield to maturity from 4% to 3%, resulting in a capital gain. Additionally, you received a 6% coupon payment. The total return combines the coupon payment and the capital gain, resulting in approximately 7.6%.

You Purchased a 5-Year Annual Interest Coupon Bond One Year