Question

You buy a 10.750% semi-annual bond maturing in exactly 7 years at 93.0630. You hold the...

You buy a 10.750% semi-annual bond maturing in exactly 7 years at 93.0630. You hold the bond for 3 years. Then you sell the bond at 98.6980.

Your holding period yield on this investment is:

Round to 5 decimals

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Answer #1

Face Value = $1000

Semi-annual Coupon payment = $1000*10.75%*1/2

= $53.75

- Buying Price of Bond = $1000*93.0630%

= $930.63

- Selling Price of Bond = $1000*98.6980%

= $986.98

- Coupon payment received during 3-year holding period = $53.75*6 payments

= $322.5

Holding period Return(HPR) = [(Selling Price - Buy price) + Total Coupon Payment]/Buy price

HPR = [($986.98 - $930.63) + $322.5]/$930.63

HPR = 40.70898%

So, the holding period yield on this investment is 40.70898%

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