Problem 7.33 – Holding Period Yield and Rate of Return on Bond Investment

Fundamentals of Corporate Finance

Ross, Westerfield, and Jordan

13th Edition

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Difficulty – Hard

a. Determine the expected rate of return on a bond investment with a given coupon rate, purchase price, and years to maturity, assuming a specific par value. b. Calculate the selling price and holding period yield (HPY) for the bond if the yield to maturity declines by a certain percentage after two years, and compare the HPY to the initial YTM while explaining the difference.

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