Problem:
One year ago, you purchased a rare Indian-head penny for $14,000. Because of the recession and the need to generate current income, you plan to sell the coin and invest in Treasury bills. The Treasury bill yield now stands at 8 percent, although it was 7 percent one year ago. A coin dealer has offered to pay you $12,800 for the coin.
Required:
Question 1: Compute the holding period return on this investment.
Note: Provide support for your underlying principle.