Question

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)

Answer 1

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%