You buy an eight-year bond that has a 6% current yield and a 6% coupon (paid ann

Question

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? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

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? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Explanation / Answer

Present Bond value = 1000

Next Year

Bond Value = pv(rate, nper,pmt,fv)

Nper  (indicates the period) = 8 -1 = 7

PV (indicates the price) = ?

PMT (indicate the annual payment) = 1000*6% = 60

FV (indicates the face value) = 1000

Rate (indicates YTM) = 7%

Bond Value = pv( 7%,7,60,1000)

Bond Value = $ 946.11

Holding-period return = (Next Year Bond Value - Present Bond value + Coupon)/Present Bond value

Holding-period return = (946.11 - 1000 + 60)/1000

Holding-period return = 0.61%

Answer

Holding-period return = 0.61%

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