NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Investing in Fixed Income Securities
Ms. Kapoor buys a Rs 1,000 face value bond with a 9% annual coupon for Rs 1,000 and holds it for one year, after which the coupon is received and the bond is sold at Rs 980. A 30% tax is not considered. What is her holding period return?
Her holding period return is 7%. She receives Rs 90 coupon but suffers a Rs 20 capital loss, so total gain is Rs 70 on an investment of Rs 1,000. The answer must combine income and price change.
- A7.0%Correct
- B9.0%
- C11.0%
- D-2.0%
Explanation
Return = (coupon + price change)/initial price = (90 + (980-1000))/1000 = 70/1000 = 7%. Ignoring the capital loss gives 9%; ignoring the coupon gives -2%. Adding the loss instead of subtracting would give 11%.
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