Question

What is the rate of return on a $5000 bond purchased at $4750 with a 12% coupon?

Answer 1

Just confirming - is the bond a one-year one?

Answer 2

it doesn't say so

Answer 3

I started off doig 0.12 x 5000 but then something went wrong in the formula I don't know what to do

Answer 4

I am confused - what does the coupon mean? It already says 12%. But you earn 250 dollars (5000-4750) which is 5.25 percent of the initial amount that is $4750

Answer 5

interest

Answer 6

Answer choics 10.71%

11.4%

12%

12.63%

Answer 7

coupon is annual percentage

Answer 8

that's exactly what I did - so that means the rate is 5.1%. But then why does the coupon say 12%?

Answer 9

that is what is confusing me, but it can't be 5.1 since it is not an answer choice. I tried doing it but it has me confused on the 12%

Answer 10

It is 12.63%

You are getting 12% of 5000 but on an investment of 4750

Answer 11

@estudier I don't understand :S How is $250 12.63 percent of $4,750 or even $5,000.

Answer 12

12% of 5000 is 600 interest
Investment is 4750
600/4750