Realized and Unrealized Holding Period Returns on Bonds

Summary

The document addresses how to describe coupon and amortization income relative to the amount originally paid for a bond, while distinguishing that measure from the bond’s current market value. It proposes realized holding period return for cash flows received relative to the purchase amount, and unrealized holding period return for the change in market price. Together these describe holding period return, which the answer identifies as unannualized.

The answer cautions that this terminology is not standardized and that calculation details can materially affect the result. Examples include whether the denominator is the clean price or full purchase price, and how to classify accrued coupon that has not yet been paid. A second answer suggests book yield or book yield-to-maturity, while distinguishing those concepts from current yield and noting that yield to maturity for a non-par bond reflects accretion toward par. The discussion offers terminology rather than a universally prescribed accounting convention.

Key ideas

• Realized holding period return relates cash flows received to the original bond purchase amount.
• Unrealized holding period return describes the change in the bond’s market price.
• Combining realized and unrealized components gives holding period return, which is not annualized here.
• The terminology is not standardized, so the calculation should be defined explicitly.
• Book yield and current yield refer to different aspects of a bond’s return.

Tags

# Answer by Dimitri Vulis (score 4)


# Is there a word or phrase with similar meaning to bond yield, but meaning yield on the actual price paid for a bond some time ago?












This is what I am looking for: (coupon amount) / (the amount that I actually paid for the bond some time ago)

## Answer by Dimitri Vulis (score 4)

https://quant.stackexchange.com/a/71644

You are specifically not considering the fair market price of the bond now, but only what you paid for it, and how much coupon/amortization it has paid out so far, no matter when. This ratio could be termed "realized holding period return". Correspondingly, the change in the market price of the bond could be termed "unrealized holding period return". Combining them, we get just "holding period return" (not annualized). It is not very common/useful ratio, but googling it finds some hits. But this is not very standardized terminology, so I would footnote and explain exactly what I mean by it in detail, to make it easier for other people to reproduce my calculation if they wish. E.g., do you divide by the clean price or the full purchase price? Do you include the accrued coupon not yet paid out in realized or in unrealized? Such little details can change the numbers.

## Answer by Chris Edmonton (score 2)

https://quant.stackexchange.com/a/71651

You may be looking for "book yield" or "book yield-to-maturity". For a non-par bond, yield-to-maturity includes accretion to par over life, while current yield (i.e., coupon rate / gross price) does not.

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

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