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31 January, 02:55

One year ago, you purchased a 6 percent coupon bond with a face value of $1,000 when it was selling for 98.6 percent of par. Today, you sold this bond for 101.2 percent of par. What is your total dollar return on this investment?

$86$74$82$60$64

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Answers (1)
  1. 31 January, 04:31
    0
    option (A) $86

    Explanation:

    Data provided in the question:

    Coupon rate = 6%

    Face value of bonds = $1,000

    Purchasing price (i. e the selling percentage at the time of purchase)

    = 98.6% of par

    Selling price = 101.2% of par

    Thus,

    Annual Coupon payment = Face value * Coupon rate

    = $1,000 * 6%

    = $60

    Now,

    Purchase price = $1,000 * 98.60%

    = $986

    Sales price = Face value of bonds * Selling price

    = $1,000 * 101.20%

    = $1,012

    Therefore,

    Total dollar Return

    = Sales price + Annual Coupon payment - Purchase price

    = $1,012 + $60 - $986

    = $86

    Hence,

    The correct answer is option (A) $86
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