suppose you bought a bond in 2001 and you sold it in 2002. The price of...
suppose you bought a bond in 2001 and you sold it in 2002. The price of the bond in 2001 was $500 and the price in 2002 was $520. If the bond made a coupon payment of $20, which of the following was the rate of return you earned by buying that bond? Can you explain how you get the answer please.
Homework Answers
Answer is 8%
We invest $ 500 in the bond in 2001 (This is our cost)
And in 2002, market value of the same is $ 520 i.e $20 increase in market value along with coupon payment of $ 20. So total return became $40.
Return % = (40/500)*100
= 8%
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