What is the expected total return for this bond?

Bond equivalent | Business & Finance homework help

The expected total return for this bond is 9.11%. This is calculated using the following formula: Investment return = Coupon payment rate + (Final sale price – Purchase price) / Purchase price. In this case, the coupon payment rate is 6%, and the future sale price of the bond in 5 years is $100(par value), so: Investment return = 6% + (100-100)/100 = 6%+0/100=6%. The reinvestment rate of 5% should also be taken into account, which will generate an additional 3.11% (reinvestment yield). Therefore, the total expected return for this bond equals 9.11%.