You bought a bond with face value of $1,000 and 7% coupon rate (paid semi-annually) for $900.

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You bought a bond with face value of $1,000 and 7% coupon rate (paid semi-annually) for $900. After 6 months you received one coupon payment and then sold the bond for the same price. What effective rate of return did you earn on this investment?

Is the yield to maturity (YTM) of a bond the same as its expected return? Explain briefly.

Related Book For answer-question

Fundamentals Of Corporate Finance

ISBN: 9781264101566

11th Edition

Authors: Richard A. Brealey, Stewart C. Myers, Alan J. Marcus

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Posted Date: May 04, 2023 03:55 AM

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You bought a bond with face value of $1,000 and 7% coupon rate (paid semi-annually) for $900.

Question:

Expert Answer:

Answer The effective rate of return on this investment can be calculated by taking the coupon payments earned and dividing them by the cost of the bond In this case the coupon payment was 70 7 of 1000 ... View the full answer

Fundamentals Of Corporate Finance

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