The Farmer National Bank has purchased a bond that has a coupon rate of 11.5% and a face value of $1000.It has 16 years to maturity and is currently selling in the market for $1309.80.The bond makes annual coupon payments.The Farmer National Bank plans on selling this bond at the end of 8 years for $1071 (ex-interest).What is the holding period return on this bond?

Question

Quizplus · Accepted Answer

The holding period return (HPR) is calculated as [(Coupon Payment * Number of Years) + (Selling Price - Purchase Price)] / Purchase Price. Here, HPR = [($115 * 8) + ($1071 - $1309.80)] / $1309.80 = 7%.

The Farmer National Bank Has Purchased a Bond That Has