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You buy a bond with a $1,000 par value today for a price of $835. The...

You buy a bond with a $1,000 par value today for a price of $835. The bond has 6 years to maturity and makes annual coupon payments of $67 per year. You hold the bond to maturity, but you do not reinvest any of your coupons. What was your effective EAR over the holding period?

7.68%

11.19%

9.02%

10.55%

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Answer #1

The amount of coupons received = 6*67 = 402
Number of years = 6
Price today = 835
Return over 6 years = (1000-835+402)/835 = 67.904%

Return over 1 year = (1+67.904%)^(1/6) -1 = 9.02%
(Option c)

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