You buy a bond issued by Terlingua Oil & Gas Exploration Corp. The coupon rate is 10%, and coupons are paid semi-annually. Par of your bond is $10,000. The bond matures in 10 years. Your price today on the bond is $9,000.

In six months, the YTM on the bond has risen by 1%. You collect the coupon payment and sell the bond. What is your effective annual rate of return? Hint: see Example 7 in the Lecture.

1.50%

2.05%

1.72%

1.00%

0.50%