Question

A corporate bond that you own at the beginning of the year is worth $905. During the year, it pays $51 in interest payments and ends the year valued at $895. What was your dollar return and percent return?

Answer 1

Dollar Return of bond = Interest payment + Change in the value of bond

Interest payment = $51

Change in the value of bond will be negative since the bond when it was purchased has having the value $905 but at the end of the year its value has depreciated or fallen to $895 which means

Fall in value of bond = $905 - $895

=$10

Thus Change in the value of bond = -$10

Dollar Return of bond = $51-$10

Dollar Return of bond = $41

Percent Return of bond = (Dollar Return of bond / Beginning Value of Bond) * 100

Percent Return of bond = ($41 / $905) * 100

Percent Return of bond = 4.53%