An investor buys a ten-year, 7 percent coupon bond for $1,050, holds it for one year and then sells it for $1,040.What was the investor's rate of return?

Question

Quizplus · Accepted Answer

The investor's rate of return is the difference between the selling price and the purchase price, divided by the purchase price, plus the coupon payment received during the year, all divided by the number of years the bond was held. In this case, the investor's rate of return is (1040-1050+70)/1050 = 5.71%.

An Investor Buys a Ten-Year, 7 Percent Coupon Bond for $1,050