Question

What is the rate of return on a $12,500 bond purchased at $10,750 with a 15% coupon?

Answer 1

With the 15% coupon, you will get $1,875. (Because 15% of the bond's price $12,500 is $1,875.) Solution: 0.15 x 12500 = 1875

So $1,875 is to be divided by the actual price of the bond which is $10,750. (1, 875 ÷ 10,750 = 0.1744 convert this to percent to get the rate of return)
0.1744 = 17.44 %

The rate of return is 17.44%.