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

You Purchased an Annual Interest Coupon Bond One Year Ago