Question

4 years ago you purchased a 13 year maturity, 2.4% coupon annual pay bond at a price of $101 per $100 of face value. Shortly after you purchased the bond, yields changed to 7.79%. If you sell the bond today at a price of $92 per $100 of face value, what is your annualized holding period return?

Answer 1

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

A B C D 1 Face value of Bond Purchase Price of Bond Annual coupon rate Holding period in years Current sale Price $100.00 2 $101.00 3 4 2.40% 4 $92.00 6 7 Annualized holding period return 0.1536% 8 9 10

Cell reference -

A В C 1 Face value of Bond Purchase Price of Bond Annual coupon rate Holding period in years Current sale Price 100 101 0.024 4 92 2 6 7 FRATE(C5,-C4*C2,С3,-Сб, 0) Annualized holding period return 8 9 10 11

Hope this will help, please do comment if you need any further explanation. Your feedback would be highly appreciated.