In March 2014 you paid 25000 for a corporate bond with a fac

In March 2014 you paid $25,000 for a corporate bond with a face value of $25,000 and a coupon rate of 5%. You needed to pay your college tuition and sold the bond in March 2015 for $27,500. What is your (holding period) return?

Solution

Holding period return comprises of interest or coupons received and capital gains

Coupon received=25000*15%=3750

Capital gains=27500-25000=2500

hence, Holding Period Return=(25000*5%+27500-25000)/25000=15%