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You bought a bond five years ago for $804 per bond. The bond is now selling for $770. It also paid $55 in interest per year, which you reinvested in the bond. Calculate the realized rate of return earned on this bond.

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hyderali230

Answer:

Realized rate of return earned on this bond is 2.61%

Explanation:

Interest Paid per year = $55

Face / Purchase Value = $804

Current Selling price = $770

Coupon rate / Interest rate per year = ( $55 / $804 ) x 100

Coupon rate / Interest rate per year = 6.84%

Return on sale of Bond = $770 - $804 = -$34

Return on sale of Bond ( Percent ) = ( -$34 / 804 ) x 100 = -4.23%

Realized rate of return = Coupon Interest rate + Return on Sale

Realized rate of return = 6.84% + ( -4.23% ) = 2.61%

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