Question

You bought a bond exactly one year ago for $1,004.50. Today, you sold the bond at a price of $987.40. The bond paid interest semi-annually at a coupon rate of 6%. What is your holding period yield on this bond?

Answer 1

Face value of bonds are generally $1,000. We are assuming the same face value

Coupon rate = 6% paid semi- annually

Semi- Annual Interest received on bond

= Face Value x Interest rate x 6 /12 months

= $1,000 x 6% x 6 / 12

= $30 every 6 months

Current Price = $987.40

Purchase Price = $1,004.50

So, Holding Period Return

= (Current Price - Purchase Price + Interest Received ) / Purchase Price x 100

= ( $987.40 - $1,004.50 + $30 + $30 ) / $1,004.50 x 100

= 4.27%