What is the rate of return on a \$10,000 bond purchased at \$8,750 with a 10% coupon?

The 10% coupon guarantees a return of \$1,000 on the nominal value of the bond, which is \$10,000. The bond's actual sale price was \$8,750, so the \$1,000 coupon must be figured as a percent of \$8,750. 1000 / 8750 = 11.43%

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1. Even though you don't say, I will assume the time was 1 year.

so look at this way:
you started with 8750 and at the end of the year you had 10,000+ 1,000 or 11,000

8750(1+r) = 11000
1+r = 1.25714..
r = .25714 or 25.71%

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2. OP is right, it IS 11.43%

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