**Question 8**: What is the return on a 5 percent coupon bond that initially sells for $1,000 and sells for $1,200 next year?To determine the return on the bond, we first need to calculate the total earnings, which includes the interest from the coupon and the appreciation in bond price.1. **Coupon Payment**: - The bond provides a coupon rate of 5%. - On a $1,000 bond, this is 5% of $1,000 = $50.2. **Price Appreciation**: - Initial Price = $1,000 - Final Price = $1,200 - Appreciation = $1,200 - $1,000 = $2003. **Total Return**: - Total Earnings = Coupon Payment + Price Appreciation = $50 + $200 = $2504. **Return Percentage**: - Return = ($250 / $1,000) * 100 = 25%Therefore, the return on the bond is 25%.

Face value = 1000 $ Coupon rate = 5 % ie 50 $ Current market value = 1200 $ current yield or rate of…

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8) What is the return on a 5 percent coupon bond that initially sells for $1,000 and sells for $1,200 next year?

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ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

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