HPR - Quant

CFA Level I
#1

An investor sold a 30-year bond at a price of $850 after he purchased it at $800 a year ago. He received $50 of interest at the time of the sale. The annualized holding period return is: A)15.0%. B)11.76%. C)12.5%. D)6.25%.

#2

C? (850+50)/800 - 1

#3

C?

#4

How about C? 50+50/800

#5

i think is c. he only held it for 1 yr so C is the annualised HPR in my opinion

#6

C.

#7

1 yr. (50+50)/800 =1/8=12.5% C

#8

Ok. everyone’s right… Can someone explain why is it 800 in the denominator and why not 850? Thx…

#9

That’s what you paid for your instrument, that’s your initial investment that produced, in one year, an interest of $50, and had a capital gain of $50 (increased in value from $800 – what you paid on it, to $850 – what you sold it for).

#10

Thanks map1! Got it…