Question

You buy an 8-year $1,000 par value bond today that has a 6% yield and a 6% annual payment coupon. In 1 year promised yields have risen to 7%. Your 1-year holding-period return was: _________.
A. 0.61%
B. -5.39%
C. 1.28%
D. -3.25%

Answer 1

Answer:

A. 0.61%

Explanation:

Calculation for what your 1-year holding-period return

Based on the information given the $1,000 par value bond will be the price for the year and we should also take note that YTM also equals the coupon rate.

We are going to use calculator to find what the following year's price will be

N = 7

I/Y = 7

PMT = 60 (60%×$1,000)

FV = 1,000

CPT PV -946.11

Now let calculate how much we would have at the end of 1 year

$946.11 + $60

= $1,006.11

Last step is to calculate for what your 1-year holding-period return

Holding-period return = $1,006.11/$1,000 - 1

Holding-period return= 0.61%

Therefore your 1-year holding-period return was 0.61%