You buy a 5-year zero coupon bond with 4% yield to maturity. You sell the bond...
You buy a 5-year zero coupon bond with 4% yield to maturity. You sell the bond 2 years later when it's yield to maturity is 2%. What was your annualized holding period return?
Homework Answers
Assuming a par value of $1000,
Price of the bond at 5 year is- =1000*1.04^-5 = 821.927
Price of the bond 3 years before maturity =1000*1.04^-3 =888.996
Holding period return =888.996/821.927-1 = 8.16%
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