Fixed Income Q75

0. An investor purchased 9% annual pay bond with maturity of 3 years and face value of $1,000 at the current market price of $1,025.78. The investor plans to hold the bond till maturity. What is the expected annualized holding period return? What is the future value of reinvested coupons?

Answer
Comment
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Option : B
Explanation : Annualized holding period return is the IRR of the investment:
N = 3, PV = -1,025.78, PMT = 90, FV = $1,000, CPT I/Y. I/Y = 8%.
The total portion of coupon payments and reinvestment return 90(1.08)² + 90(1.08) + 90 = $292.18.

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