Zelda Zebu buys a bond five months before a coupon is due to be paid. The bond has a face value of $10,000 and a 7% coupon rate. There are 29 semi-annual coupons remaining. The bond is priced at a YTM (Yield to Maturity) of 8%.

Zelda keeps the bond for four years and nine months. She then sells the bond. The YTM (Yield to Maturity) at time of sale is the same as that at time of purchase. While the bond was in her possession she deposited all coupons received into a bank account earning interest of J2 (annual - coming to you in two batches thought the year) = 8%.

What was her HPRR expressed on a per annum compounded twice a year basis?

(information -The YTM can be split into YTM = r_f+ risk premium

r_f depends on the economy as whole, while the risk premium depends on the company. The YTM is the expected rate of return. It can also be split as YTM = Income component (the cash we expect to get in the coming year) + capital gain

The cash coming in during the coming year are the coupons. Expressed as a return we would get Income return = Annual coupons/price = Current Yield (CY))