You purchased an annual interest coupon bond one year ago with 6 years remaining to maturity at the time of purchase.The coupon interest rate is 10% and par value is $1,000.At the time you purchased the bond,the yield to maturity was 8%.If you sold the bond after receiving the first interest payment and the bond's yield to maturity had changed to 7%,your annual total rate of return on holding the bond for that year would have been _________.

Question

Quizplus · Accepted Answer

The total rate of return includes the coupon payment and the capital gain from the change in yield. The bond price increased due to the decrease in yield from 8% to 7%, resulting in a higher return than just the coupon rate.

You Purchased an Annual Interest Coupon Bond One Year Ago