Question

You bought a bond five years ago for $856 per bond. The bond is now selling for $850. It also paid $60 in interest per year, which you reinvested in the bond. Calculate the realized rate of return earned on this bond. (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16) Realized rate of return

Answer 1

Purchase Price = $856
Annual Coupon = $60
Current Price = $850
Period = 5 years

Let realized return be i%

$856 = $60 * PVIFA(i%, 5) + $850 * PVIF(i%, 5)

Using financial calculator:
N = 5
PV = -856
PMT = 60
FV = 850

I = 6.89%

Realized Return = 6.89%