Question

Suppose you bought a bond with an annual coupon rate of 7.4 percent one year ago for $897. The bond sells for $926 today. a. Assuming a $1,000 face value, what was your total dollar return on this investment over the past year

Answer 1

Answer:

Total dollar return is $103.00

Explanation:

The total dollar return on the investment comprises of the increase in price as well as the annual coupon of 7.4% of face value received over the holding period of one year.

annual coupon=face value*coupon rate=$1000*7.4%=$74.00

increase in bond's price=$926-$897=$29.00  

Total dollar return on investment=$74.00+$29.00  

Total dollar return on investment=$103