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You buy a(n) eight-year bond that has a 6.75% current yield and a 6.75% coupon (paid...

You buy a(n) eight-year bond that has a 6.75% current yield and a 6.75% coupon (paid annually). In one year, promised yields to maturity have risen to 7.75%. What is your holding-period return? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Holding-period return %

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Expert Solution


Purchase price = $1000

Using financial calculator BA II Plus - Input details:

#

I/Y = Rate or yield / frequency of coupon in a year =

              6.750000

PMT = Coupon rate x FV / frequency =

-$67.50

N = Number of years remaining x frequency =

8.00

FV = Future Value =

-$1,000.00

CPT > PV = Present value of bond =

$1,000.00

Value of bond one year later = $947.49

Using financial calculator BA II Plus - Input details:

#

I/Y = Rate or yield / frequency of coupon in a year =

              7.750000

PMT = Coupon rate x FV / frequency =

-$67.50

N = Number of years remaining x frequency =

7.00

FV = Future Value =

-$1,000.00

CPT > PV = Present value of bond =

$947.49

Holding period return = (Coupon + Value of bond one year later - Purchase price)/Purchase price

Holding period return = (67.5 + 947.49 - 1000)/1000

Holding period return = 1.50%

jeff jeffy answered 3 years ago
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