Kim Back invested $20,000 one year in corporate bonds. Each bond sold for $1,000 and earned a coupon payment of $80 each during the year. The price of the bond at the end of the year dropped to $980. Which of the following is Kim's investment percent return on each bond?
A) −2%
B) 6%
C) 4%
D) −6%

Question

Quizplus · Accepted Answer

Kim's investment percent return on each bond is calculated by considering both the coupon payment received and the change in the price of the bond. The coupon payment is $80, and the price of the bond decreased from $1,000 to $980, a loss of $20. Therefore, the total gain per bond is $80 (coupon payment) - $20 (loss in price) = $60. The percent return is calculated as ($60 gain / $1,000 original price) * 100% = 6%.

Kim Back Invested $20,000 One Year in Corporate Bonds