NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Investing in Fixed Income Securities (NISM XXI-A)
An investor buys a bond at its face value of Rs 1,000 with a 8% annual coupon. After one year, immediately after receiving the coupon, the bond is sold for Rs 1,030. What is the holding period return for the year?
The holding period return is 11.0%. The investor earned Rs 80 coupon plus a Rs 30 price gain, totalling Rs 110 on an outlay of Rs 1,000. Counting only the capital gain or only the coupon would understate the return.
- A3.0%
- B8.0%
- C11.0%Correct
- D10.0%
Explanation
Total gain = coupon 80 + price gain 30 = Rs 110. Return = 110 / 1,000 = 11.0%. Ignoring the coupon gives 3%, and ignoring the capital gain gives 8%.
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