By year-end, remaining maturity is 29 years. If the yield to maturity were still 8%, the bond would still sell at par and the holding-period return would be 8%. At a higher yield, price and return will be lower. Suppose the yield to maturity is 8.5%. With annual payments of $80 and a face value of $1,000, the price of the bond is $946.70 ( n 29; i 8.5%; PMT $80; FV $1,000). The bond initially sold at $1,000 when issued at the start of the year. The holding-period return is HPR 80 (946.70 1,000)

1 000 0267 2 67

,

. . %

which is less than the initial yield to maturity of 8%.

 LO.1