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You purchase a bond today for $900 that has a 5% coupon rate, paid semi-annually, and...

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Finance

You purchase a bond today for $900 that has a 5% coupon rate,paid semi-annually, and has 10 years to maturity. The face value ofthe bond is

$1,000. One year later you sell the bond for $1,020

a) Calculate the Holding Period Return (HPR) (in %) over the oneyear that you held the bond. (8)

b) Do you think interest rates increased or decreased over theone year period that you held the bond? Explain briefly. (5)

Answer & Explanation Solved by verified expert
3.8 Ratings (373 Votes)
a Price of bond today P0 900 Face value of bond 1000Years to maturity 10 Coupon rate 5First we need to find the yield to maturity of bond today Asthe coupons are paid semi annuallySemi annual coupon payment Coupon rate x par value 2 5x 1000 2 50 2 25No of half years to maturity 2 x no of years to maturity 2 x10 20Now we will find the semi annual yield to maturity of bond Wecan    See Answer
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