Question

1 pts Question 10 Suppose you purchased a bond two years ago for $900.00 and have since received two annual coupon payments. You have decided to sell your bond today. The current market price of the bond is $800.00 and its current yield is 7.50%. Given this information, what is the holding period return for this bond? O 2.2296 -4.44% C) 2.50%

please show all steps and calculations!

Answer 1

Answer is 2.22%

Calculation of annual coupon:

Face Value = $1,000
Current Price = $800

Current Yield = Annual Coupon / Current Price
0.0750 = Annual Coupon / $800
Annual Coupon = $60

Calculation of holding period yield:

Purchase Price = $900
Annual Coupon = $600
Selling Price = $800
Period = 2 years

Holding Period Yield = (Selling Price + 2 * Annual Coupon - Purchase Price) / Purchase Price
Holding Period Yield = ($800 + 2 * $60 - $900) / $900
Holding Period Yield = $20 / $900
Holding Period Yield = 2.22%