Question
Two years ago you purchased a bond that has a par value of $1,000 and pays an annual coupon rate of 7% (coupon payments occur
Two years ago you purchased a bond that has a par value of $1,000 and pays an annual coupon rate of 7% (coupon payments occur semiannually at the end of each semiannual period). You purchased this bond at the market price right after it made its coupon payment. At the time of the purchase, the bonds current yield (CY) was 7.2%, and the bond had exactly 5 years left to maturity. You held the bond for 2 years and sold it at the market price immediately after receiving the fourth coupon payment. At the time of the sale, the bonds yield-to-maturity (YTM) was 7.5%, stated as an APR.
What is the total return in dollars (undiscounted dollar amount) you earned on the bond investment over the 2-year holding period from the coupons and the price change? State this total dollar return in percent relative to the amount invested. Assume that coupon payments are not reinvested.
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