Hi
A 10% coupon bond was purchased for $1,000. One year later the bond was sold for $915 to yield 11%. The investor’s holding period yield on this bond is closest to:
A) 9.0%.
B)1.5%
C) 18.5%.
how is the answer 1.5%?
Why dont we take
HPY = [Begining_value – (interest + ending value) / beginning value] – 1
instead it is solved as
HPY = [(interest + ending value) / beginning value] – 1
= [(100 + 915) / 1,000] – 1
= 1.015 – 1 = 1.5%
Why was begining value omitted in the numerator please?
In this similar sum #2 below, i calculated it correctly but seems the calc for the above sum is different to the below sum?
A stock is currently worth $75. If the stock was purchased one year ago for $60, and the stock paid a $1.50 dividend over the course of the year, what is the holding period return?
A)24.0%.
b)27.5%.
C)22.0%.
My Answer (75 – 60 + 1.50) / 60 = 27.5%.
notice in 2nd sum begining value is there in the numerator but missing from the 1st sum.
thank you
Question 1
HPR is 915+100-1000/1000*100 = 1.5 %
You just have to think common sense leave the formula see we purchased bond for 1000 during the year we receive 100 coupon and sold bond for 915 so 1015-1000/1000*100 you get the answer… question will not always be straight if you get the concept clear you can solve the twisted question…