Rate of return of the bond = "\\frac {End value of principal + coupon interest- Beginning value of principal}{ Beginning value of principal} \\times 100"
Expected return after one year = 3+0.25= 3.25%
Coupon interest= "\\frac {3.25}{100} \\times 20000 = 650"
End value of principal = "1.0325 \\times 20000= 20650"
Substitute the values into the above formula
Therefore "\\frac {20650 + 650- 20000} {20000} \\times 100"
Rate of return for the year = 6.5 %
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