Calculate tom holding period return over the year

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Question - Melody Ltd bonds have $1,000 face value and coupon rate of 7% pa. The annual coupons are paid on 30th November each year. The bonds will mature in 1st December 2023. Tom bought a Melody Ltd bond in 1st December, 2020 for $974.23 for the bond, providing him with a yield to maturity of 8% pa. Now, one year later, on 1st December 2021 after receiving the 2021 coupon payment, Tom sold the bond to Zoe, providing her with a yield to maturity of 7.5% pa.

a. What price did Zoe pay for the bond? (Show answer correct to the nearer cent.)

b. Calculate Tom's holding period return over the year he owned the bond? (Show answer as a percentage, correct to 2 decimal places.)

c. Explain the relationship between the YTM and Prices of Melody Ltd bonds, and compare this relationship with Song Lid bond that have 3% annual coupon and 15 years to maturity and not selling at par.

Reference no: EM133085393

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