What is the return on a 5 percent coupon bond that initially sells for $1,000 and sells for $1,200 next year?
A)5 percent
B)10 percent
C)-5 percent
D)25 percent

Question

Quizplus · Accepted Answer

The return on the bond is calculated by considering both the coupon payment and the capital gain. The coupon payment is 5% of $1000, which is $50. The capital gain is the increase in the bond's price from $1000 to $1200, which is $200. The total return is the sum of the coupon payment and the capital gain, which is $50 + $200 = $250. The return as a percentage of the initial price is $250 / $1000 = 25%.

What Is the Return on a 5 Percent Coupon Bond