Bond Prices and Interest Rate Changes A 6.75 percent coupon bond with 10 years left to maturity is priced to offer a 6.5 percent yield to maturity. You believe that in one year, the yield to maturity will be 6.65 percent. If this occurs, what would be the total return of the bond in percent? (Assume semi-annual interest payments and $1,000 par value.)

Question

Quizplus · Accepted Answer

The correct answer is A.The bond's current price is $1,000. In one year, the bond's price will be $1,000 * (1 + 0.065/2) = $1,032.50. The total return of the bond in percent is ($1,032.50 - $1,000) / $1,000 * 100% = 5.5%.

Bond Prices and Interest Rate Changes a 6