Question

5. Presume you purchased a 10 year year bond for $1,000, which has a face value of $1000.00. The bond pays an annual coupon of $60.00 and has an interest rate (Yeild to maturity) of of 6%. Presume you decide to sell the bond after 1 year for $1100.00. This means you sold a 9 year bond. Given the above information what is your holding period return?

6. Given the same information as listed in question 5, presume the yield to maturing increases to 7.3% and the bond price decreases to $945.00, what is the holding period return or loss? Is this a capital gain or loss?

Answer 1

In 6 the holdng period return is profit. the capital is gained but marginally
5 Holding period return & Income e Price at Endodhuod Initial Value 760P (1100 - 1000 1000 return = Incoe (Price at End of Period 6 Holding Period - Initial Vala

return & Incoe (Price ad End of 1 6 Holding Period Initial value = 734 945 - 1000) 1000 = 0.018