Question

Exactly three years ago, you purchased a $1,000 face value bond for $1,211.16. The coupon rate was 6.5 percent with interest paid semiannually. Today, you sold that bond for $1,089.54. What was your rate of return for the 3- year period, or holding period yield, on this investment

Answer 1

Answer:

The rate of return on this investment is 6.06%

Explanation:

Rate of return or holding period return is the rate of income earned during the period in which the investment is held. It includes any income in the form of interest received or dividend and price difference.

Interest received  during 3 years = 1,000 x 6.5% x 3 = $195

Price difference = Current price  - Initial Price = 1089.54 - 12,11.16 = -121.62

Rate of return = ( ( Income received + Price change ) / Initial price ) x 100

Rate of return =  ( ( $195 + (-121.62) ) / 1211.16 ) x 100

Rate of return  = ( $73.78 / $1,211.16 ) x 100

Rate of return = 0.0606

Rate of return = 6.06%

Holding period return is 6.06%