Hi, This is from schweser book 6, exam 2. Anyone know how to solve this? Thanks. 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. 8.0% B. 8.5% C. 9.0% D. 9.5%

B calculate yield 4.98 for n=5 if yield is 3.98 for n=4 pv=10732 return (10732-10440+600)/10440=8.5%

B

Awesome, thanks Florinpop. I forgot to use the coupon when calculating the return.

Florinpop…Can you please show the working again and explain, i’m a little confused.

webtwister…here goes: Step 1: You want to calculate the initial YTM. PV=-10440 FV=10000 N=5 PMT=600 CMPT I/Y =? -> 4.98 Yield has now dropped 1%, so current yield is 3.98%. Step 2 You want to calculate the current PV so: FV=10,000 N=4 I/Y=3.98 PV=? -> $10,732. Step 3: Calculate HPR. Remember to factor in the coupon of 600. (10732+600-10440)/10440 = 8.5% Hope this helps.

Cheers Kev