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You purchase a bond today for $980; M=$1000, the coupon rate is 4% paid semi-annually, and there are n=7 years to maturity. If you sell the bond for $1025 in six months time, what is your rate of return?

Would I be correct in saying that the rate of return is 1,025 of the sale, plus the 20 dollar coupon divided by the initial sale?

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  • $\begingroup$ This is correct if you are computing the six-months return. Do you need to translate it into an annual rate of return? Or monthly? or is it OK as it is? $\endgroup$
    – user20429
    Apr 25, 2016 at 23:20

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Your approach is correct, but I would check the size of the coupon if I were you.

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  • $\begingroup$ Do you think there is something wrong with the coupon calculation? I see 4% on a face value of 1000, paid semiannually, I get 20 like the OP. $\endgroup$
    – user20429
    Apr 25, 2016 at 23:20
  • $\begingroup$ The question originally had a $200 coupon (it's been edited). $\endgroup$ Apr 26, 2016 at 6:05

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