You have invested $1,000 in a 12% coupon bond that matures in three years.You are investing the interest income in a fund earning 8%.At the end of three years,what was your annualized rate of return?

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The bond pays $120 annually (12% of $1,000). Reinvesting this at 8% for three years, the future value of the reinvested interest is calculated. The total return is then annualized over the three-year period, resulting in an annualized rate of return of approximately 11.6%.

You Have Invested $1,000 in a 12% Coupon Bond That