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    Bond Price and Holding Period Rate of Return

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    You are considering the purchase of a bond with a semiannual coupon of $40, ten years to maturity, a face value of $1,000, and a current market price of $1,000.

    a. At what price will the bond sell in the market in 6 months, immediately after the first coupon payment, if the stated annual yield on the bond (in six mos.) is 4%?

    b. If you were to buy the bond now and sell it after six mos., what holding period rate of return would be earned over the six month period?

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    Solution Summary

    The solution calculates the bond prices after 6 months and the holding period rate of return if the bond is purchased now and sold at the end of 6 months.

    $2.49

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