The return an investor earns on a bond over a period of time is known as the holding period return, defined as interest income plus or minus the change in the bonds price, all divided by the beginning bond price.

a. What is the holding period return on a bond with a par value of $1,000 and a coupon rate of 6.5 percent if its price at the beginning of the year was $1,040 and its price at the end was $940? Assume interest is paid annually.