Answer:
The total return is 12%
Explanation:
First and foremost we need to establish the bond price now, which is present value of cash flows (all coupon payments and repayment of principal) till maturity.
In calculating the price of the bond , I multiplied the discount factor by the cash flows.
The discount factor is 1/(1+r)^-N,where r is the yield to maturity and N is the number of years to maturity taken as 6 years previously and 5 years now.
N is the relevant year the cash flow is received .
The initial price at which bond is bought is $1,092.46 (as calculated in the attached)
The price the bond is sold now is $ 1,123.01 (
as calculated in the attached)
the total return=(selling price now+coupon received)/ initial purchase price
the total return =($1,123.01 +$100)/$ 1,092.46 -1
=1.12-1
=12%
