Your grandmother currently owns bonds that will mature in 7 years

Finance Mar 18, 2021

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.)

Expert Solution

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%

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