A bond has a $1,000 par value, 12 years to maturity, and pays a coupon of 5.5% per year, semiannually. You expect the bond’s yield to maturity to decrease to 4.5% per year in three years. If you buy the bond today for $978.50 and sell it in three years, what is the annual return on your investment?
1) 8.98%
2) 8.52%
3) 8.87%
4) 8.74%
5) 8.32%