Calculate estimated annualized return based on predictions

Assignment Help Financial Management

Reference no: EM131047509

A 7-year, 5 percent coupon bond has a yield to maturity of 4 percent. A portfolio manager with a four-year horizon needs to forecast the total return on the bond over the coming four years. In four years, the yield to maturity on this bond is expected to be 5 percent and the coupon payments can be reinvested in short term securities at a rate of 2, 2.5, 3, and 3.5 percent respectively for the next four years. Calculate the estimated annualized return based on these predictions

Reference no: EM131047509

Questions Cloud

What is americans cost of hedging : American Airlines hedges a £2.5 million receivable by selling pounds forward. If the spot rate is £1 = $1.73 and the 90 day forward rate is $1.7158, what is American's cost of hedging? $142,000 $35,500 $8,875 it is unknown at the time American enters..

How much has the forward market hedge cost dec : DEC hedges a SF 3.2 million receivable due in 180 days. The current spot rate is SF 1 = $0.18834 and the 180 day forward rate is SF 1 = $0.18625. If the spot rate at the end of 180 days is $0.18728, how much has the forward market hedge cost DEC? $6,..

Portfolio rate-what would cause the portfolio interest rate : When using a portfolio rate, what would cause the portfolio interest rate on a UL to perform better than the market in an extended declining interest rate market and yet would perform worse than the market in an extended increasing interest rate envi..

Calculate estimated annualized return based on predictions : A 7-year, 5 percent coupon bond has a yield to maturity of 4 percent. A portfolio manager with a four-year horizon needs to forecast the total return on the bond over the coming four years. In four years, the yield to maturity on this bond is expecte..

The market risk premium and risk-free rate : The Saunders Investment Bank has the following financing outstanding. Debt: 30,000 bonds with a coupon rate of 9 percent and a current price quote of 114.0; the bonds have 20 years to maturity. 200,000 zero coupon bonds with a price quote of 19.0 and..

What is the distinction between unethical and illegal : Balance sheets are from a fixed point in time. Therefore, it is possible to do “window dressing” on the last day of the fiscal year. This could include bringing in long term debt as cash to improve short-term financial liquidity and then repaying the..

Main tax policy consideration groups–social : Review the three main tax policy consideration groups–social, equity and political and pick one to work with. With your pick explain how the tax policy consideration works and give an example of a tax statute that is driven by that consideration.

The multiplier on treasury note futures : Suppose you want to hedge a $370 million bond portfolio with a duration of 7.7 years using 10-year Treasury note futures with a duration of 4.7 years, a futures price of 107, and 99 days to expiration. The multiplier on Treasury note futures is $100,..

User Account

All Pages