You are planning to buy a corporate bond with a seven year maturity that pays 7 percent coupon interest. The bond is priced at $ 108,500 per $ 100,000 par value. You expect to sell the bond in two years when a similar risk five year bond is priced to yield 7.2 percent annually to maturity.
Assuming that you can reinvest all cash flows at an 8 percent annual rate (4 percent semiannually), calculate your expected total return over the two- year holding period.