Question 3

1. (a) You purchased the bond 45 days after last coupon payment date. Quoted price of the bond is $970. Face value of the bond is $1,000. Coupon rate is 5% p.a. and there are 182 days in the next semi-annual coupon period. Calculate your holding period percentage return if you sell the bond at $1,025 immediately after receiving the first coupon payment.

2. (b) Explain whether coupon rate or current yield is better for measuring performance of bond investors. (3 marks)