An investor owned a 9 percent annual payment coupon bond for six years that was originally purchased at a 9 percent required return. She did not reinvest any coupons; she redeemed the bond at par.

a) What was her annual realized rate of return? 

b) What if she did reinvest the coupons but only earned 5 percent on each coupon? Why are your answers not equal to 9 percent?

Answer rating: 100% (QA)

a To calculate the annual realized rate of return we need to consider both the annual coupon payments and the capital gain or loss from the difference ... View the full answer