Question

In year 0 you buy a 2-year 4% coupon annual paying bond, with face value equal to $1000, and a YTM of 5%. After 1 year, the YTM falls to 4% and you sell the bond. What is the annualized holding period return on your investment? (choose the closest number)

Answer 1

Based on the face value, the YTM, and the coupon, the annualized holding period return on the bond is 6%.

What is the annualized holding period return?

This can be found as:

= (Present value of bond at year zero / Present value of bond at year 1) - 1

Using a spreadsheet it would be:

= ( (PV(0.04, 1 ,-0.04*1,000, -1,000) + 0.04 x 1,000) / PV(0.04, 2, -0.04x 1,000, -1,000)) - 1

= 6%

Find out more on holding period returns at https://brainly.com/question/17189052.

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