You buy an eight-year bond that has a 6% current yield and a 6% coupon (paid annually). In one year, promised yields to maturity have risen to 7%. What is your holding-period return

Respuesta :

Answer:

0.61%

Explanation:

For computing the holding period return we first have to determine the present value which is shown in the attachment

Future value = $1,000

Rate of interest = 7%

NPER = 8 years - 1 year = 7 year

PMT = $1,000 × 6% = $60

The formula is shown below:

= -PV(Rate;NPER;PMT;FV;type)

So, after solving this, the present value is $946.11

Now the holding period return is

= (Present value  - Par Bond value + Coupon) ÷ (Par value)

= ($946.11 - $1,000 + $60) ÷ ($1,000)

= 0.61%

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