An investor is considering the purchase of an option-free corporate bond with an annual coupon rate of 7.25 percent (paid semiannually) and 15 years remaining to maturity. The price of the bond is RM106.1301 and the yield to maturity is 6.6 percent. Assume that the yield curve is at 6 percent and that the spread for this issuer is 60 basis points. Assume

The reinvestment rate is 4 percent annually.

At the horizon date, the yield curve is flat at 5.65 annually.

At the horizon date, the spread for this issuer is 50 basis points.

(a) Compute the total return for this bond for 1-year investment horizon. (10 marks)

(b) Based on the answer in part (a), compute the total return effective annual yield. (2 marks)