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coldgirl [10]
3 years ago
15

Consider a 30-year 8 percent bond, paying coupon semi-annually, and selling for $896.81 today (note that the yield is 9 percent)

. Find the holding period return if the interest rate drops to 8 percent after six months. Make sure to annualize the rate. Make sure to show your work.
Business
1 answer:
Lemur [1.5K]3 years ago
7 0

Answer: See explanation

Explanation:

Based on the information given, we should note that the bond will trade at par at $1000 after six month

The holding period return will be:

= [ P1 - P0] / P0

= [ 1000 - 896.81 ] / 896.81

= 103.19 / 896.81

= 0.1151

= 11.51%

Then, the Annualized rate will be:

= HPR at 6 Months / 6/12

= HPR × 12 / 6

= 11.51% × 12 / 6

= 11.51% × 2

= 23.01%

Annualized Rate = 23.01%

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