The correct answer is A. 10.00%.
The total rate of return is calculated by adding the interest yield and the capital gains yield. In this case, the interest yield is 7.9% and the capital gains yield is 2.5%. Therefore, the total rate of return is 10.00%.
The interest yield is the annual percentage of the face value of a bond that is paid to the bondholder as interest. The capital gains yield is the increase in the market value of a security over a period of time, expressed as a percentage of the security’s original purchase price.
The total rate of return is a measure of the total return on an investment, including both income and capital gains. It is an important metric to consider when making investment decisions, as it can help you to compare the performance of different investments.
Here is a brief explanation of each option:
- Option A: 10.00% is the correct answer. This is calculated by adding the interest yield and the capital gains yield.
- Option B: 3.16% is the capital gains yield. This is the increase in the market value of a security over a period of time, expressed as a percentage of the security’s original purchase price.
- Option C: 0.31% is the interest yield divided by the capital gains yield. This is a very small number, which suggests that the interest yield is much lower than the capital gains yield.
- Option D: 5.40% is the interest yield plus the capital gains yield divided by two. This is a common way to calculate the total rate of return, but it is not always accurate. In this case, the interest yield is much lower than the capital gains yield, so the total rate of return is actually closer to 10.00% than 5.40%.