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**CFA Practice Question**

An investor had purchased a 6% semi-annual coupon bond 4 months ago for $963. The face value of the bond is $1,000 and the next coupon will be paid in 2 months. If the investor were to sell the bond now, with the quoted, "clean" price of the bond at $978, the HPR for the investor equals ______.

A. 7.26%

B. 3.63%

C. 1.56%

**Explanation:**The "clean price" of a bond is the price of a bond without the accrued interest from the last coupon payment date. In this example, the bond pays semiannually and the next coupon is in two months. Hence, the accrued interest is for 4 months and amounts to (6%/2)*(4/6) = 2% of $1,000 face value. Thus, the bond's selling price would be $978+$20 = $998. The HPR for the investor equals 998/963 - 1 = 3.63%.

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**User Contributed Comments**
11

User |
Comment |
---|---|

xqcc |
HPR = (P1-P0+D1)/P0 = (978-963+20)/963 = 3.6% |

robkaz |
HPR is not % figure, so the answer should be simply 103.63. HPY would be 3.6%. |

shasha |
HPR = (P1+D1)/P0, whereas HPY = (P1-P0+D1)/P0 = HPR - 1 |

timspear |
Any idea where in our notes it say what an HPR is? I found some HPYs in session 16 E but no HPRs. |

mtcfa |
Totally agrree with robkaz. If the investor had a 103% return, he would have more than doubled his money. The answer should be 3.63%. |

Dancho |
Can anyone explain why we want the clean price but take into account accrued interest? |

nike |
Holding Period Return (HPR) = Ending Value of Investment / Beginning Value of Investment; Holding Period Yield (HPY) = HPR - 1. |

becks1234 |
According to 2006 CFA Vol I page 245, HPR = (P1- P0+D1)/P0. |

steved333 |
Exactly. The answer is the same since there are no dividends, but rather accrued interest. The ? asks what the investor would get if the clean price were quoted at $978. It doesn't say that that was the amount it was sold for. If the next investor were to buy the bond and get the whole interest pmt, the present investor would want to be sure he added the interest accrued to the clean price before selling it. The point of the ? was to make sure you understand adding accrued interest to the clean price, not just how to calculate the HPR. |

thekobe |
yes a steved 333, the question is if the investor were to seel the bond at the quoted clean price what is the HPR for the investor? so the investor gets a HPR considering the accrued interest |

bloomt |
Don't we need to know whether the initial price paid is the ex-coupon price or the 'dirty' price? |