What Is the Rate of Return for an Investor Who

question 7

Multiple Choice

What is the rate of return for an investor who pays $1,054.47 for a three-year bond with a 7% coupon and sells the bond one year later for $1,037.19?

• A)5.00%
• B)5.33%
• C)6.46%
• D)7.00% Rate of Return =
• 1054.47 - 1037.19 = 17.28
• ($70.00 - $17.28)/$1,054.47

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Definitions:

Mean of a Sample

The average value obtained by dividing the sum of all observations in a sample by the number of observations.

Mean of a Population

The average value derived from adding all the values in a population and then dividing by the number of values.

Null Hypothesis

A default hypothesis that there is no effect or no difference, used as a starting point for statistical significance testing.

One-sample Z-test

A statistical test used to determine if the mean of a single sample differs significantly from a known or hypothesized population mean.