Question

An investor buys a bond that has a 5-year life, an annual coupon rate of 5.5%,...

An investor buys a bond that has a 5-year life, an annual coupon rate of 5.5%, and is currently trading at a Yield to Maturity of 5.5%. The coupons are paid semi-annually, and the bond has a par value of $1,000. After holding the bond for 1-year, the bonds Yield to Maturity has decreased from 5.5% to 4.0%. Assume that the investor has received a full year of coupon payments.
What is this investors Rate of Return from this investment?

9.4%

11.0%

5.5%

4.0%

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