To solve this problem, we’ll calculate both the total return and the average rate of return for one bond.

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Step 1: Total Return

1. Bond Price: Each bond costs $2,000.
2. Coupon Rate: 6% annually.
   • The annual interest earned = $2,000 \times 0.06 = 120$.
3. Term: 7 years.
   • Total interest earned over 7 years = $120 \times 7 = 840$.
4. Face Value: Assume the bond is redeemed at its face value of $2,000.
   • Total return = $\text{Total interest} + \text{Face value} = 840 + 2,000 = 2,840$.

The total return is $2,840.

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Step 2: Average Rate of Return

The average rate of return can be calculated using the formula: $\text{Average Rate of Return} = \left( \frac{\text{Total Return} - \text{Initial Investment}}{\text{Initial Investment} \times \text{Number of Years}} \right) \times 100$

1. Initial Investment = $2,000.
2. Total Return = $2,840.
3. Number of Years = 7.

$\text{Average Rate of Return} = \left( \frac{2,840 - 2,000}{2,000 \times 7} \right) \times 100$

$\text{Average Rate of Return} = \left( \frac{840}{14,000} \right) \times 100 = 6\%.$

The average rate of return is 6.00%.

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Final Answers:

(a) The total return is $2,840.
(b) The average rate of return is 6.00%.

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Would you like detailed explanations of the calculations or further help?
Here are 5 related questions to explore:

1. What happens to the total return if the coupon rate is increased to 8%?
2. How does the average rate of return compare for a 10-year bond with the same coupon rate?
3. What would the total return be if the bond is sold at a discount (e.g., $1,800 face value)?
4. How is the coupon rate determined in bond pricing?
5. What is the present value of the bond's future cash flows at a 5% discount rate?

Tip: Understanding bond terms like face value, coupon rate, and maturity is key to evaluating investments effectively.