Quoted Prices (% of $1,000 par value)

Year Beginning of the Year End of the Year Average Holding Period Return on High-Grade Corporate Bonds

2010 94.349 100.223 7.30%

2011 100.223 101.319 11.72%

2012 101.319 105.849 -6.89%

2013 105.849 110.776 7.90%

2014 110.776 121.592 9.11%

In early January 2010 , you purchased $27,000 worth of some high-grade corporate bonds. The bonds carried a coupon of 11 5/8% and 2024. You paid 94.349 when you bought the bonds. Over the five years from 2010 through 2014 the bonds were priced in the market as follows: LOADING...

. Coupon payments were made on schedule throughout the 5-year period.

a. Find the annual holding period returns for 2010 through 2014(See Chapter 5 for the HPR formula.)

b. Use the average return information in the given table to evaluate the investment performance of this bond. How do you think it stacks up against the market? Explain.

a. The holding period return for 2010 is %. (Round to two decimal places.)

The holding period return for 2011 is %. (Round to two decimal places.)

The holding period return for 2012 is %. (Round to two decimal places.)

The holding period return for 2013 is %. (Round to two decimal places.)

The holding period return for 2014 is %. (Round to two decimal places.)

b. Use the average return information in the given table to evaluate the investment performance of this bond. How do you think it stacks up against the market? Explain. (Select the best choice below.)

The high-grade corporate bond investment has outperformed the market. The average rate of return for the investment is 16.62 % versus the average market rate of

5.83 %.

The market has outperformed the corporate bond investment. The average rate of return for the investment is 5.83 % versus the average market rate of 16.62 %.

Click to select your answer(s).