You buy a $1,000 face value bond at par that pays interest annually. It yields 10% per annum. As is the usual case, the bond’s issuer waits until just when it is due to pay interest and files for bankruptcy. It does this the day its 3rd coupon payment is due. You wait an entire year for the bankruptcy process to play out before collecting $0.50 per dollar on your initial investment.
1) What is your total dollar return?
2) What is your total percent return?
3) What is your holding period?
4) What is your Effective Annual Return?