You purchased a 5-year annual-interest coupon bond 1 year ago. Its coupon interest rate was 6%, and its par value was $1,000. At the time you purchased the bond, the yield to maturity was 4%. If you sold the bond after receiving the first interest payment and the bond's yield to maturity had changed to 3%, your annual total rate of return on holding the bond for that year would have been approximately ________.

A) 5%
B) 5.5%
C) 7.6%
D) 8.9%

Question

Lauren Johnson · Accepted Answer

Final Answer : C, Explanation :  PV 0  = 60  0  = 60   +   ; PV 0  = $1,089.04 PV 1  = 60   +   ; PV 1  = $1,111.51 Calculator entries for purchase price are N = 5, I/Y = 4, PMT = 60, FV = 1,000, CPT PV → 1,089.04 Calculator entries for ending price are N = 4, I/Y = 3, PMT = 60, FV = 1,000, CPT PV → 1,111.51 Total ending cash = 1,111.51 + 60 = 1,171.51 HPR= (1,171.51/1,089.04) − 1 = 7.57%  class=answers-bank-image d-inline rel=preload > +  0  = 60   +   ; PV 0  = $1,089.04 PV 1  = 60   +   ; PV 1  = $1,111.51 Calculator entries for purchase price are N = 5, I/Y = 4, PMT = 60, FV = 1,000, CPT PV → 1,089.04 Calculator entries for ending price are N = 4, I/Y = 3, PMT = 60, FV = 1,000, CPT PV → 1,111.51 Total ending cash = 1,111.51 + 60 = 1,171.51 HPR= (1,171.51/1,089.04) − 1 = 7.57%  class=answers-bank-image d-inline rel=preload > ; PV 0  = $1,089.04PV 1  = 60  0  = 60   +   ; PV 0  = $1,089.04 PV 1  = 60   +   ; PV 1  = $1,111.51 Calculator entries for purchase price are N = 5, I/Y = 4, PMT = 60, FV = 1,000, CPT PV → 1,089.04 Calculator entries for ending price are N = 4, I/Y = 3, PMT = 60, FV = 1,000, CPT PV → 1,111.51 Total ending cash = 1,111.51 + 60 = 1,171.51 HPR= (1,171.51/1,089.04) − 1 = 7.57%  class=answers-bank-image d-inline rel=preload > +  0  = 60   +   ; PV 0  = $1,089.04 PV 1  = 60   +   ; PV 1  = $1,111.51 Calculator entries for purchase price are N = 5, I/Y = 4, PMT = 60, FV = 1,000, CPT PV → 1,089.04 Calculator entries for ending price are N = 4, I/Y = 3, PMT = 60, FV = 1,000, CPT PV → 1,111.51 Total ending cash = 1,111.51 + 60 = 1,171.51 HPR= (1,171.51/1,089.04) − 1 = 7.57%  class=answers-bank-image d-inline rel=preload > ; PV 1  = $1,111.51Calculator entries for purchase price are N = 5, I/Y = 4, PMT = 60, FV = 1,000, CPT PV → 1,089.04Calculator entries for ending price are N = 4, I/Y = 3, PMT = 60, FV = 1,000, CPT PV → 1,111.51Total ending cash = 1,111.51 + 60 = 1,171.51HPR= (1,171.51/1,089.04) − 1 = 7.57%

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