Ask Question
6 September, 10:30

A 30-year Treasury bond as a face value of $1,000, price of $1,200with a $50 coupon payment. Assume the price of this bond decreasesto $1,100 over the next year. The one-year holding period return is equal to:

A) - 9.17%

B) - 8.33%

C) - 4.17%

D) - 3.79%

+1
Answers (2)
  1. 6 September, 10:36
    0
    The one-year holding period return is equal to - 4.17%, so the right answer is C.

    Explanation:

    In order to calculate the the one-year holding return we would have to use the fomula for Holding Period Return (HPR), which is the following:

    HPR = Current Yield + Capital Change

    Current Yield = Yearly Coupon Payment / Price Paid = 50/1200

    Capital Change = (New Value-Old Value) / Original Value = (1100 - 1200) / 1200 = - 100/1200

    HPR = (50-100) / 1200 = - 0.4166 = - 0.417%
  2. 6 September, 10:48
    0
    C) - 4.17%

    Explanation:

    The return received on the asset in the period in which it is held is called holding period return. It included the interest / dividend received and change in the initial price and current price.

    According to given data

    Initial Price of Bond = $1,200

    Current Value of the bond = $$1,100

    Yearly Coupon Payment = $50

    Formula for Holding Period Return

    HPR = [ Income + [ (Expected value - Initial Value) ] / initial value

    HPR = [ Coupon Payment + [ (Current Value - Initial Value) ] / initial value

    HPR = [ $50 + ($1,100 - $1,200) ] / $1,200

    HPR = [ $50 - $100 ] / $1,200

    HPR = - $50 / $1,200

    HPR = - 0.0417 = - 4.17%
Know the Answer?
Not Sure About the Answer?
Find an answer to your question 👍 “A 30-year Treasury bond as a face value of $1,000, price of $1,200with a $50 coupon payment. Assume the price of this bond decreasesto ...” in 📗 Business if the answers seem to be not correct or there’s no answer. Try a smart search to find answers to similar questions.
Search for Other Answers