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Calculate the expected one-year holding period return

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Reference no: EM132150450

A 20-year Canada bond with an 8% semi-annual coupon is currently selling at par ($1,000) and the probability distribution of its yield to maturity (YTM) a year from now is as follows:

State of Economy Probability YTM (%)

Boom .20 11.0

Normal Growth .50 8.0

Recession .30 7.0

a) Calculate the expected one-year holding period return (HPR)

b) If you invested $200,000 in these bonds, what would be your expected profit be if you sold the bonds at the end of year one?

Reference no: EM132150450

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