Question

What is the rate of return for an investor who pays $972.89 for a three year bond with a 8.8% coupon paid annually and a face value of $1,000 and sells the bond one year later for $980.1? Enter your answer as a percentage. Do not include the percentage sign in your answer.

Enter your response below. Enter your answer rounded to 2 DECIMAL PLACES.

Answer 1

Holding Period Return = [Coupons Received + (Sales Price after one year - Purchase Price)] / Purchase Price. Coupons Received Sales Price after 1 year Purchase Price Holding Period Return $88.00 ($1,000 x 8.8% --> As coupons are payable on par value of the bonds at coupon rate] $980.10 $972.89 9.79% [($88 +($980.1 - $972.89) / $972.89 = ($88 + $7.21) / $972.89 = $95.21 / $972.89 = 9.79%]