Question

# One year ago, you bought a bond at a price of \$992.6000.The bond pays coupons semi-annually,...

One year ago, you bought a bond at a price of \$992.6000.The bond pays coupons semi-annually, has a coupon rate of 6% per year, a face value of \$1,000 and would mature in 5 years. Today, the bond just paid its coupon and the yield to maturity is 8%. What is your holding period return in the past year? (suppose you did not reinvest coupons)

Face/Par Value of bond = \$1000

Semi-Annual Coupon Bond = \$1000*6%*1/2

= \$30

One year ago you bought the Bond for \$992.6000

Now after 1 years,

Semi-annual YTM = 8%/2 = 4%

No of Coupon payment(n) =No of years to maturity*2 = (5 years -1 years)*2 =8

Calculating the Market price of Bond:-   Price = \$201.982 + \$730.690

Price = \$932.67

So,the current market price of these bonds is \$932.67

- Holding Period Return(HPR) = [(Current price - Buy Price) + Coupon Income in a year]/Buy Price

HPR =[(\$932.67 - \$992.60) + (\$30*2)]/\$992.60

HPR = 0.0071%

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