An investor is considering the purchase of an option-free corporate bond with a coupon rate of 6.625% and 20 years remaining to maturity.

The bond’s price is 102.833 and the yield to maturity is 6.372%.

Assume that the Treasury yield curve is flat at 4% and the credit spread for this issuer is 237 basis points for all maturities. Compute the 1-year total return on both a bond equivalent basis and an effective rate basis assuming the following facts in evidence:

a. The reinvestment rate is 4.5%.

b. The Treasury yield curve is flat at the horizon date at 4.5%.

c. The credit spread for this issuer is 300 basis points for all maturities at the horizon date.