Question

An investor buys a 5-year, 9% coupon bond for $975, holds it for 1 year, and then sells the bond for $985. What was the investor's rate of return?

Answer 1

Answer:

hence investor's rate of return is 10.26%

Explanation:

Given data

time = 5 year

rate = 9%

coupon bond = $975

sell bond = $985

at time = 1 year

to find out

investor's rate of return

solution

we will find first here Coupon payment  that is

Coupon payment = 9% of 1000 that is  $90

so that we can say that coupon bond will be

975 = 90 / (1 + r ) + $985 / (1 + r )

solve here r we get r

rate r = 10.26 %

so

hence investor's rate of return is 10.26%