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Calculating a Bond’s Holding Period Return Before Maturity

Article Quant Q&A · Author: CcS
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Summary

The document asks how to calculate the return when a bond is purchased and sold before maturity. In the example, the investor pays $980, receives a semiannual coupon, and sells the bond six months later for $1,025. The proposed approach combines the sale proceeds and coupon received, then compares that total with the initial purchase price to find the holding-period gain relative to the original investment.

The accepted response confirms the basic approach but points out that the coupon amount needs checking. With a 4% annual coupon rate on a $1,000 face value and semiannual payments, the coupon for the six-month holding period is $20. The calculation concerns a single six-month period and does not explain annualizing the return, reinvesting coupons, or adjusting for taxes and transaction costs. It is a brief worked-concept prompt rather than a broader bond-return methodology.

Key ideas

  • A bond holding-period return includes both sale proceeds and coupon income.
  • Compare the combined cash received with the initial purchase price to measure the period’s gain.
  • For a semiannual coupon, use half of the annual coupon amount for a six-month period.
  • The example does not address annualization, reinvestment, taxes, or trading costs.

Tags

Fixed incomeStatistics
Full text
# Finding rate of return of bond sold before maturity


# Finding rate of return of bond sold before maturity












You purchase a bond today for $980; M=$1000, the coupon rate is 4% paid semi-annually, and there are n=7 years to maturity. If you sell the bond for $1025 in six months time, what is your rate of return?

Would I be correct in saying that the rate of return is 1,025 of the sale, plus the 20 dollar coupon divided by the initial sale?

## Answer by Chris Taylor (score 1, accepted)

https://quant.stackexchange.com/a/25624

Your approach is correct, but I would check the size of the coupon if I were you.

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.