Question

you bought a 15 year bond for $1200 and then sold the bond for 1385 five years later it was a 10% coupon bond with a par value of 1000 what is your HPR or rate of return over the five year period on this coupon paying bonds

Answer 1

Holding Period Return Formula (HPR) = Income + (End of period value - Initial Value ) / initial Value

Income = Coupon Payments received ( $1000 @ 10% = $100 per year )

Initial Value = $1200

End of period Value = 1385

HPR = {(100*5) + (1385 - 1200)} / 1200

HPR = {500 + 185} / 1200

HPR = 0.5708

Rate of Return (ROR) = Interest + {(Maturity value - Initial Value) / n} / (Maturity value + Initial value)/2

ROR = 500 + {(1385 - 1200) / 5} / (1385+1200)/2

ROR ={500 + 37} / 1292.5

ROR = 537 / 1292.5

ROR = 0.4155

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