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?

Step 1: Calculate the coupon payment The coupon payment is the interest that the bondholder receives annually. It is calculated by multiplying the bond's face value by the coupon rate. In this case, since the face value and coupon rate are not given, we will assume that the bond's face value is $1,000 (as it is the most common face value for bonds) and the coupon rate is 7%.

Coupon Payment = Face Value x Coupon Rate Coupon Payment = $1,000 x 7$70

Step 2: Calculate the total return The total return is the sum of the coupon payment and the change in the bond's price.

Total Return = Coupon Payment + (Selling Price - Purchase Price) Total Return = $70 + ($1,037.19 - $1,054.47) =$52.72

Step 3: Calculate the rate of return The rate of return is the total return divided by the purchase price, expressed as a percentage.

Rate of Return = (Total Return / Purchase Price) x 100% Rate of Return = ($52.72 /$1,054.47) x 100% = 5%

So, the rate of return for the investor is 5%.