Question

Determine the annual holding period rate of return on a 10-year, $30,000 discount bond that you originally purchased for $13,200 and sold 7 years later for $22,500 TT T Arial 3 (12pt) T-5 - E MS @ 3's Path:p Words:0

Please show work, thanks!

Answer 1

Given for a bond,

Purchase price = $13200

selling price = $22500

years hold = 7 years

So, holding period return = (final value - initial value)/initial value = (22500-13200)/13200 = 0.7045 or 70.45%

So, annualised Holding period return = (1+HPR)^(1/n) - 1 = (1.7045)^(1/7) - 1 = 7.92%

So, annualised Holding period return of the bond is 7.92%