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%.
C? (850+50)/800 - 1
How about C? 50+50/800
i think is c. he only held it for 1 yr so C is the annualised HPR in my opinion
1 yr. (50+50)/800 =1/8=12.5% C
Ok. everyone’s right… Can someone explain why is it 800 in the denominator and why not 850? Thx…
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).
Thanks map1! Got it…