I was reading a book about debt securities and bonds. There is a way given in the book that calculates HPR of the bond.
If an investor purchases a bond at Rs. 104, earns Rs. 8 as coupon, which he reinvests at 7% for a period of 1 year, and finally sells the bond at Rs. 110 after 1 year then his HPR would be: HPR = [(8) + (8 * 7%) + (110-104)]/ 104 = 14.00%
What i don't under stand is this part :
[(8) + (8 * 7%)
Why is that 7% interest rate is multiplied with 8 and why '8' is added to it ?