Fixed Income Q

A bond portfolio manager is contemplating the purchase of a corporate bond with the following characteristics:

• A coupon rate of 11%, paid semiannually
• Four years remain until maturity
• The current price of the bond is 98.4321 with a yield to maturity of 11.50%
• The Treasury yield curve is flat @ 8%
• The credit spread for the issuer is 350 basis points at all maturities

Calculate the total effective return on this investment, assuming a one year investment horizon, a coupon reinvestment rate of 6%, no change in he Treasury yield curve at the horizon date, and a 250 basis point decline in the credit spread for all maturities at the horizon date.