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Homework answers / question archive / Your grandmother currently owns bonds that will mature in 7 years
Your grandmother currently owns bonds that will mature in 7 years. The face value of these bonds is $1,000, and their coupon rate is 8%, with interest paid annually. Currently the yield to maturity is 12%. She bought these bonds one year ago at a price of $1,000, and just received her annual coupon interest payment. What is her holding period return on the bonds? (Use annual compounding.)
Answer:
FV = 1000
PMT = 80
I = 12
N = 7
PV =? 817
Received $80 in interest. 817 + 80 = 897
Bought for $1000, worth $897. Down $103 in a $1000 investment. 103/1000 = Down 10.3%
