You buy a(n) eight-year bond t
You buy a(n) eight-year bond that has a 6.75% current yield anda 6.75% coupon (paid annually). In one year, promised yields tomaturity have risen to 7.75%. What is your holding-period return?(Do not round intermediate calculations. Round your answer to 2decimal places.) Holding-period return %
Answer:
Purchase price = $1000
|
Using financial calculator BA II Plus – Inputdetails: |
# |
|
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 – Inputdetails: |
# |
|
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%
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