Question

Suppose you bought a bond with an annual coupon rate of 4.6 percent one year ago for $930. The bond sells for $955 today.
a. Assuming a $1,000 face value, what was your total dollar return on this investment over the past year?
b. What was your total nominal rate of return on this investment over the past year?

Answer 1

Answer:

a. $71

b. 7.63%

Explanation:

a) The total dollar return is = Increase in Price + the coupon payment

Total dollar return = $955 – 930 + 46

Total dollar return = $71

b) The total percentage return of the bond is =  Total dollar return / Previous Bond Price

R = [($955 – 930) + 46] / $930

R = 0.0763

R = 7.63%