2% is the rate of return on a bond with a coupon of $38 payable in one year that was purchased for $950 and sold one year later for $931.
How do bonds make you money?
Bonds can be profitable for investors in two different ways. Direct bond purchases are made by private investors with the intention of holding them till maturity and profiting from the income they accrue. Additionally, they could invest in a bond mutual fund or bond ETF (ETF). The interest plus appreciation divided by the initial bond price, stated as a percentage, is used to calculate the rate of return.
What is rate of return on a bond?
If you've owned a bond for a long time, you may wish to figure out its annual percent return, which is the percent return divided by the number of years you've owned the investment. For instance, the return on a $1,000 bond kept for three years with a $145 return is 14.5 percent, yet the yearly return is only 4.83 percent.
How do you calculate the average return on a bond?
The interest plus appreciation divided by the initial bond price, stated as a percentage, is used to calculate the rate of return.
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