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Wize University Introduction to Finance Textbook > Bond Valuation

Return on Investment

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Return on Investment

The return on investment is how much an investor has received from the investment, typically expressed as a percentage of the initial investment.
  • Measures the return vs the initial investment
  • Includes income generated from the investment and the change in the asset's value.
  • Can be positive or negative
  • Nominal return because it does not consider inflation.





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Example: Return on Investment

Stephen paid $895 for a 5-year bond that offers a 5% coupon and pays coupons on a semi-annual basis. The bond has a face value of $1,000. YTM is 7%. Stephen held the bond for 4 years and sold it today for $956. What was his holding period return on investment?

Practice: Return on Investment

What is the realized rate of return if an investor purchased a $1,000 face value 10-year bond at par 3 years ago and sells it today. The bond has a coupon rate of 6% and the coupons are paid semi-annually and the current YTM on bonds is 7%. What is the holding period return on investment?

%

Round your final answer to 2 decimal places.
Extra Practice
You purchase a 10-year bond last year at par and today that bond is yielding 10%. It has a face value of $1000 and a coupon rate of 7% paid annually. If you sold the bond today, what would you holding period return be?
8 years ago you purchased a bond with a face value of $1,000 and coupon rate of 9%. The coupons are paid semi-annually and at the time the bond was yielding 8%. You did not reinvest the coupons and today the bond matured. What was your holding period return?
Round your work to at least 6 decimal places and final answer to 2 decimal places.
You purchased a bond for $850 last year and sold it today for $900. During that time, you collected one annual coupon of $50. What is your return on investment?
What is the return on investment if a bond was purchased 2 years ago at par and is sold today at a yield of 7%. The bond has a face value of $1,000, a coupon rate of 8% and has 8 years remaining until maturity. Coupons are paid semi-annually.
What is the holding period return on a bond that was purchased 4 years ago for $890.44 and sold today for $1,000. The bond has a coupon rate of 8% paid semi-annually and a face value of $1,000.
What is the return on investment if a bond was purchased 2 years ago at par and is sold today at a yield of 8%. The bond has a face value of $1,000, a coupon rate of 7% and has 8 years remaining until maturity. Coupons are paid semi-annually.
What is the holding period return on a bond that was purchased 4 years ago for $890.44 and sold today for $1,000. The bond has a coupon rate of 8% paid semi-annually and a face value of $1,000.