Question: Holding Period Yield ILO 2 ] The YTM on a bond is the interest rate you earn on your investment if interest rates don't change.

Holding Period Yield ILO

2]

The YTM on a bond is the interest rate you earn on your investment if interest rates don't change. If yoL actually sell the bond before it matures, your realized return is known as the holdin:s period yield

(

HPY

) .

.

Suppose that today you buy a bond with an annual coupon rate of

7

percent for

1, 050 .

The bond has

17

years to maturity. Whal rate of return do you expect to earn on your investment? Assume a par value of S

1, 000 .

.

Two years from now, the YTM on your bond has declined by l percent, and you decide to sell. What price will your bond sell for? What is the HPY on your invest

ment? Compare this yield to the YTM when you first bought the bond. Why are they different?

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