M&B3 3rd Edition by Dean Croushore

Exercise 7

Suppose that I buy a 10-year bond today for $1,000 and that the interest rate when the bond is issued is 5 percent. The day after I buy the bond, the market interest rate on 10-year bonds rises to 7 percent. If I keep the bond for the full 10 years until it matures, what is the bond's average annual return