An investor bought a bond at par (=$1,000)and held it for one month.If the coupon rate is 5%, original maturity of the bond is 8 years, and the selling price was $937.90, what is the holding period return?

Question

Quizplus · Accepted Answer

The holding period return (HPR) is calculated by taking into account the income received plus the change in price, divided by the initial price. Here, the investor receives a coupon payment for one month (which is 5% annual, so for one month it's 5%/12) and experiences a decrease in the bond's price from $1,000 to $937.90. The calculation is as follows: [(5%/12) * $1,000 + ($937.90 - $1,000)] / $1,000 = -0.0579 or -5.79%.

An Investor Bought a Bond at Par (=$1,000)and Held It