Suppose that you have just paid $1,000 for a 10% coupon bond that matures in 5...

Suppose that you have just paid $1,000 for a 10% coupon bond that matures in 5 years. The face value of the bond is $1,000. You expect that in 1 year you will be able to sell the bond for $1,100. What is the expected rate of return of this investment?

A) 0%

B) 10%

C) more than 10%

D) not enough information to answer the question

Solutions

Expert Solution

% return on sale= (1100-1000)/1000=100/1000=10%

Since there is also a coupon payment of 10% hence total return is more than 10%

Option c is correct

jeff jeffy answered 2 years ago

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