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CFA Level I · CFA Level I Exam · Interest Rate Risk and Return

An investor buys a bond for 98.00, receives a single coupon of 4.00 after one year, and then sells the bond for 99.00. The investor's one-year holding period return is closest to:

The one-year holding period return is about 5.10%. It combines the 4.00 coupon and the 1.00 price gain, which total 5.00, divided by the 98.00 purchase price. Counting only the coupon gives 4.08% and counting only the price gain gives 1.02%, so both are incomplete.

  1. A1.02%
  2. B4.08%
  3. C5.10%Correct

Explanation

Holding period return = (99.00 + 4.00 − 98.00)/98.00 = 5.00/98.00 = 5.10%. The 4.08% result counts only the coupon income (4/98), and the 1.02% result counts only the price gain (1/98). The correct return includes both components.

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