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Assume that you just bought a 3-year, $1,000 par value bond with a 10% annual coupon for $1,000. Suppose 1 year after you bought it,

Assume that you just bought a 3-year, $1,000 par value bond with a 10% annual coupon for $1,000. Suppose 1 year after you bought it, the going interest rate falls to 6% and remains at that level until the bond matures. What would be your annual expected rate of return on the bond over the 3-year holding period?

10.00%

9.65%

9.00%

7.33%

6.00%

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