SIE Exam Question 332: Answer and Explanation

Question: 332

When calculating total return on a bond,

• A. interest earned is subtracted from any capital gain, and this result is then divided by the initial purchase price.
• B. interest earned is subtracted from the redemption value of the bond.
• C. interest earned is added to any capital gain, and this result is then divided by the initial purchase price.
• D. interest earned is divided by the redemption value of the bond.

Correct Answer: C

Explanation:

C - Total return on a bond is determined by adding the interest earned during the time period to any capital gain, then dividing this result by the initial purchase price of the bond.