A $500 000 180-day note is purchased with a yield of 8% and sold 90 days later with a yield of 6%.Calculate the discrete holding period return for this note expressed as an annual nominal return.

Question

Quizplus · Accepted Answer

Using equation 5.1,the initial price of the $500 000 note with a yield of 8% and with 180 days to maturity is $481 022.67.In 90 days at the new yield of 6%,the price of the note is $492 710.58.The discrete return is therefore ($492710.58 - $481022.67)/$481022.67 = 0.0242 or 2.42% over the 90 days.The annual nominal return is therefore 0.024 F1F1F1S1F1F1F10 365/90 = 0.0981 or 9.81%.

A $500 000 180-Day Note Is Purchased with a Yield −9.81% -9.81 \% −9.81%

A $500 000 180-Day Note Is Purchased with a Yield $-9.81 \%$