Skip to content
#
Question:

An investor purchased a $10,000, 5-year corporate note one year ago for $10,440. The note pays an annual coupon of $600. Over the past year, the note’s annual yield-to-maturity has dropped by 1%. What total return did the investor earn over the year?

A
8.5%.

Explaination

First, find the yield on the note at time of purchase. The appropriate calculator steps are:

PV =-10,440; FV = 10,000; PMT = 600; N = 5; CPT -> I/Y = 4.9842%. Next, value the note at a yield of 3.9842% with four years to maturity.

FV = 10,000; PMT = 600; N = 4; I/Y = 3.9842; CPT -> PV = $10,731,99.

Finally, calculate the holding period return. The formula is:

$5232_w430_h40.png$

Take more free practice tests for other ASVAB topics with our cfa level 1 practice questions now!