The price of a bond at the beginning of a period is $980.00 and $975.00 at the end of the period.What is the holding period return if the annual coupon rate is 4.5%?

Question

Quizplus · Accepted Answer

The formula for holding period return is:
HPR = (Ending Bond Value - Beginning Bond Value + Coupon Payment) / Beginning Bond Value
Here, Beginning Bond Value = $980, Ending Bond Value = $975, Coupon Payment = 0.045*1000 = $45 (assuming the face value of the bond is $1000, which is not given but a standard assumption). 
Substituting the values in the formula, we get:
HPR = (975-980+45)/980
HPR = 4.08%
Therefore, the holding period return is 4.08%, which is closest to option A: 4.08%.

The Price of a Bond at the Beginning of a Period