An Australian Commonwealth Government Security (CGS) has a maturity date of 15 June 2025 and pays coupons semi-annually on the 15th of the relevant coupon payment month. The CGS has a coupon rate of 4% per annum. You purchase the bond with a settlement date 17 June 2022 and a yield to maturity of 3% per annum. You intend to sell the bond on 23 March 2024 when you expect the yield to maturity to be 3% per annum. You do not plan to reinvest the coupons so will earn a 0% return on coupon reinvestment.

a) Calculate the holding period return. (8 marks)

b) Discuss why the holding period return does not equal the yield to maturity. (2 marks)