Question

The YTM on a bond is the interest rate you earn on your investment if interest rates don’t change. If you actually sell the bond before it matures, your realized return is known as the holding period yield (HPY). a. Suppose that today you buy a bond with an annual coupon of 8 percent for $1,060. The bond has 19 years to maturity. What rate of return do you expect to earn on your investment?

Answer 1

Answer:

The rate of return expected from this investment is 4.59%

Explanation:

In calculating the above rate,  I used the rate formula in excel

=rate(nper,pmt,-pv,fv)

where nper is the duration of the investment .that is 19 years

pmt is the periodic coupon of $84.8 as calculated in the attached.

pv is $1060 as given in the question while fv future value is zero

Find attached for detailed computation.