You purchased an annual interest coupon bond one year ago that had 9 years remaining to maturity at that time.The coupon interest rate was 10% and the par value was $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 yield to maturity continued to be 8%,your annual total rate of return on holding the bond for that year would have been _________.

Question

Quizplus · Accepted Answer

The correct answer is A. The annual total rate of return on holding the bond for that year would have been 8.00%. This is because the yield to maturity is 8%, which means that the bond's price will increase by 8% over the course of the year. The coupon interest rate is 10%, which means that the bondholder will receive $100 in interest payments over the course of the year. The total return on the bond is therefore 8% + 10% = 18%. However, the bondholder will only receive one year's worth of interest payments, so the annual total rate of return is 18% / 1 = 8%.

You Purchased an Annual Interest Coupon Bond One Year Ago