(Answered) Poblem holding period returncollapseyou buy a 7 annual

Accounting

Problem: Holding Period ReturnCOLLAPSE

You buy a 7% annual coupon bond for $875 today. The bond has 10 years till maturity.

A. What rate of return do you 'expect' to earn on your bond investment?

B. Two years from now, the YTM on your bond has declined by 1% due to credit rating improvement or market interest rate changes. If you decide to sell the bond, what price will your bond sell for? What is the holding period return on your investment? Compare this HPR with the YTM from part A.

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