Question

You buy a 5 year, semiannual bond with a coupon rate of 10% for $820. After 18 months, you sell the bond for $800. What was you rate of return over the 18 months?

Correct anser is 15.85% please write down of how you get this number. Thank you.

Answer 1

CACULATION OF THE RETURN OF SEMI ANNUAL BONDS IN 18 MONTHS
Par Value of the Bonds =	$                 1,000
Coupon Rate =	10%
Coupon Amount =	$                     100
Half Yearly Coupon Amount = $ 100 / 2 =	$                       50
In 18 months Coupon amount received = $ 50 X 3 =	$                     150
Return = (Sales Price - Purchase Price + Coupon Recived) / Purchase Price
Return = ($ 800 - $ 820 + $ 150 ) / $ 820
Return = ( - $ 20 + $ 150 ) / $ 820
Return = $ 130 / $ 820
Return = 0.1585
Return In % = 15.85%