The Price Perpetual Bank has purchased a bond that has a coupon rate of 5.5% and a face value of $1,000.It has 11 years to maturity and is currently selling in the market for $887.52.The bond makes annual coupon payments.The Price Perpetual Bank is planning on selling this bond at the end of 5 years for $1,036.50 (ex-interest).What is the holding period return on this bond?

Question

Quizplus · Accepted Answer

To calculate the holding period return, we need to first calculate the current yield and the capital gain/loss. 
- The current yield is the annual coupon payment divided by the current market price: (0.055 x $1,000) / $887.52 = 6.20%
- The capital gain/loss is the difference between the selling price and the original purchase price, plus any coupon payments received: ($1,036.50 + $55) - $887.52 = $203.98
- The holding period return is the sum of the current yield and the capital gain/loss, divided by the holding period: (0.062 + 0.0385) / 5 = 0.0205, or 2.05%
- To convert to a percentage, we multiply by 100: 2.05% = 9.82% (rounded to two decimal places) 
Therefore, the answer is D, 9.82%.

The Price Perpetual Bank Has Purchased a Bond That Has