Tom bought 5 bonds with $1,000 face value for $1,100 5 years ago. The coupon rate...
Tom bought 5 bonds with $1,000 face value for $1,100 5 years ago. The coupon rate is 8%. Tom sold the bond for $900 today. What is Tom’s total percentage return?
Homework Answers
Solution:
Calculation of Tom’s total percentage return:
Income=Coupon amount over the period of holding
=($1000*8%)*5=$400
Capital gain/(loss)=Sale price-Purchase price
=$900-$1100=-$200
Total percentage return=[(Income+Capital gain)/Purchase Price]*100
=[$400+(-$200)]/$1100]*100
=[$200/$1100]*100
=18.18%
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