Question

A newly issued bond pays its coupons once annually. Its coupon rate is 5.7%, its maturity is 20 years, and its yield to maturity is 8.5%. a. Find the holding-period return for a 1-year investment period if the bond is selling at a yield to maturity of 7.5% by the end of the year. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Answer 1

16.56%

Step-by-step explanation:

Intial Price, P0=753.03

when n=20, pmt=57 ,fv=1,000 ,i=8.5

Next year price = P1= $820.74

when n=19, pmt= 57, fv =1,000, i= 7.5

HPR=$57+(820.74-75303) / $753.03

HPR= 0.165611 = 16.56%

The holding period return is 16.56%