Question

Suppose you bought a 10 year 8% bond for $975. If you sold the bond for...

Suppose you bought a 10 year 8% bond for $975. If you sold the bond for $940 after holding it for 2 years, what was your holding period yield?

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Answer #1

Purchase price of Bond = $975

Face Value of Bond = $1000

Annual Coupon payment = $1000*8% = $80

You holded the bond for 2 years and then sold at Price of $940

Coupon Income in 2 years = $80*2 = $160

- Holding Period Yield = [(Selling Price - Purchase Price)+ Coupon Income]/Purchase Price

Holding Period Yield = [($940 - $975) + $160]/$975

Holding Period Yield = 12.82%

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