Question

1. Two years ago, you bought a 10-year, 6% annualcoupon payment bond when its yield-to-maturity was 8%. Right after you purchased this bond, the yield-to-maturity on this bond increased to 9% and stayed at the same level in the next two years. You reinvested the coupon payments at the market rate of 9%. You just sold the bond at 9% yield-to-maturity. What is your annualized holding period return? What is your capital gain/loss? Note: Remember that capital gains/losses are computed with respect to the price on the constant price-yield trajectory.

Answer 1

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

Cell reference -