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You purchased a 5-year annual interest coupon bond one year ago. Its coupon interest rate was 6% and its par value was $1,000. At the time you purchased the bond, the yield to maturity was 4%. If you sold the bond after receiving the first interest payment and the bond's yield to maturity had changed to 3%, your annual total rate of return on holding the bond for that year would have been approximately _________.

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Answer:

7.57%

Explanation:

Calculator entries for purchase price are N = 5, I/Y = 4, PMT = 60, FV = 1,000, CPT PV Picture 1,089.04

Calculator entries for ending price are N =4, I/Y = 3, PMT = 60, FV = 1,000, CPT PV Picture 1,111.51

Total ending cash = 1,111.51 + 60 = 1,171.51

HPR= (1,171.51/1,089.04) - 1 = 7.57%

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