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What is the total rate of return on a $5,000 coupon bond with a coupon rate...

What is the total rate of return on a $5,000 coupon bond with a coupon rate 7.64% that was purchased for $4,700 and sold one year later at par?

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Answer #1


Purchase price = $4,700

Par value = $5,000

Coupon rate = 7.64% or 0.0764

Calculate the coupon payment -

Coupon payment = Par value * Coupon rate

Coupon payment = $5,000 * 0.0764 = $382

Sale price = $5,000

Total amount earned from bond = sale price + coupon payment = $5,000 + $382 = $5,382

Calculate the total rate of return -

Total rate of return = [(Total amount earned from bond - Purchase price)/Purchase price] * 100

Total rate of return = [($5,382 - $4,700)/$4,700] * 100

Total rate of return = 14.51%

Thus,

The total rate of return is 14.51%.

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