(Q. 19 IN B) WHAT IS THE RATE OF RETURN FOR AN INVESTOR WHO PAYS $...

14. (Q. 19 in B) What is the rate of return for an investor who pays $1,054.47 for

a three-year bond with a 7 percent coupon and sells the bond one year later for

$1,037.19? Assume the investor can reinvest the coupons at a 9% APR with

semi-annual compounding. The bond pays coupons semi-annually and has a

face value of $1,000.

A) 5.00 percent

B) 5.15 percent

C) 5.30 percent

D) 8.43 percent

Answer B

The rate of return is calculated as:

,

)

$

35

$(

1

037

.

19

47

054

(

$

×

+

+

−

=

045

47

5

15

%.