You bought a yen-denominated corporate bond at the beginning of the year for ¥100,000.The bond paid 3 percent annual interest and was trading for ¥110,000 at year-end.What holding period return,measured in yen,did you earn on the bond?
A) 3%
B) 7%
C) 10%
D) 13%
E) 30%

Question

Quizplus · Accepted Answer

The bond paid 3% annual interest, which translates to ¥3,000 (100,000 x 0.03) in interest income for the year. At year-end, the bond was trading for ¥110,000, meaning that the investor could sell it for a capital gain of ¥10,000.

The holding period return is calculated as the sum of the interest income and capital gain, divided by the initial investment:

(¥3,000 + ¥10,000)/¥100,000 = 13%

Therefore, the answer is D, a holding period return of 13%.

You Bought a Yen-Denominated Corporate Bond at the Beginning of the Year