Practice Question:

Last year you invested in a 5-year bond that makes annual coupon payments on a face value of $1,000. The coupon rate is 8% per annum, and the bond was sold to you at par. Now one year has passed, you have just received the first coupon payment, and the bond currently trades at a yield to maturity of 7%. What percentage return have you earned during this one-year holding period?

A) 3.4%

B) 7.0%

C) 11.4%

D) 12.1%