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.)

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Melina Rice

25 November, 02:33

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.)

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Jordon Boyd · Answer 1

16.56%

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%