An investor buys a 10-year annual coupon bond at a yield of 8.7% and sells it 2 years later when it still yields 8.7%.What is his rate of return over this period?

Question

Quizplus · Accepted Answer

Since the bond was sold at the same yield as it was bought, there was no gain or loss from the change in yield. Therefore, the investor's return is simply equal to the coupon rate (which is annual) for the two-year holding period, which results in a rate of return of 8.7%.

An Investor Buys a 10-Year Annual Coupon Bond at a Yield