Short Question

Question 12 (9 marks)

There is a ten-year coupon bond which has face value of $1000. The coupon rate is 4%, paid once every year. An investor bought this bond when it was first issued, when the prevailing rate of return on other assets is 5% per annum. After holding this bond for four years and receiving four coupon payments, s/he has decided to sell this bond on the market. At this time, the rate of return on other assets has dropped to 4.5% per annum. What is the total return s/he has made on this bond during these four years?

Show all the working of your calculation