A bond investor buys a municipal bond with a face value of $100,000 and a 3% coupon. The bond matures in one year. The investor pays $99,500 for the bond which includes accrued interest. To the nearest 1/10 of 1%, what will be the total return on the bond at maturity?

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Scout

22 May, 06:09

A bond investor buys a municipal bond with a face value of $100,000 and a 3% coupon. The bond matures in one year. The investor pays $99,500 for the bond which includes accrued interest. To the nearest 1/10 of 1%, what will be the total return on the bond at maturity?

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Brendan Spencer · Answer 1

3.5%

Explanation:

The formula to calculate total return is: Profit/Original Cost. 100,000 x. 03 = $3,000 interest. $3,000 interest + 100,000 principal = 103,000 cash flow. $103,000 - 99,500 = $3,500 gain. $3,500 gain/$99,500 cost =.03518 ...03518 = 3.5%