Already have an account? Get multiple benefits of using own account!
Login in your account..!
Remember me
Don't have an account? Create your account in less than a minutes,
Forgot password? how can I recover my password now!
Enter right registered email to receive password!
To compute the total returns we need the investment horizon, reinvestment rate and the price of the bond at the end of the investment horizon. Steps involved in computing total return over the investment horizon are as follows:
First, we need to compute the total coupon payments and the reinvestment income based on an assumed reinvestment rate. Reinvestment income is the amount that can be earned by reinvesting the coupon interest received on the securities. Mostly, bond interest is paid semiannually; so let us assume that the coupon payment is reinvested every six months. Therefore, the reinvestment rate can be calculated by dividing the annual interest rate that the investor assumes can be earned by reinvestment with two.
Next, we need to determine the projected sale price at the end of the investment horizon. This is referred to as horizon price.
By adding the value computed in (i) and (ii) and deducting the cost to obtain the funds we arrive at total future return that will be received from the investment. The reinvestment rates are assumed.
Then we need to calculate semiannual total return using the formula
(Total future return/ full price of the bond) 1/n - 1
Full price is obtained by adding accrued interest to the price. And n is the number of semiannual periods in the investment horizon.
The total return for semiannual-pay bonds can be expressed on a bond-equivalent basis by simply doubling the interest rates found in step 4.To express the total returns on an effective rate basis - the formula used is(1 + Semiannual total return) 2 -1.
The total return can either be calculated on a bond-equivalent basis or on an effective rate basis. If the total returns are compared to a benchmark index that is based on bond-equivalent basis, then the total return is also to be calculated on the basis of bond-equivalent. But if liabilities are calculated on an effective rate basis and the bond is being used to satisfy liabilities, then the total return should be calculated on the basis of effective rate.
What are the main classes of institutions that issue bonds in the USA? There are three major classes of institutions which issue bonds in the USA: national governments, local g
DISCUSS THE APPLICABILITY OF OPERATING CYCLE IN VEGETABLE GROWING.
Q. Credit control - account receivable management? Once credit has been established it is important to review outstanding accounts on a regular basis so overdue accounts can be
We can compute any forward rate using the spot rate. When we tell 3 years forward rate 4 years from now, there are two elements to consider. One is the length of
Question : (a) A project must have a useful purpose. Therefore, as a project is evaluated, the team should determine the requirements of the local community and industry. These
Corporate bonds are debt securities issued by private and public corporations. These bonds are issued to meet specific requirements like building a new plant, pur
If the cost benefits of interest rate swaps would similarly be arbitraged away in competitive markets, what other descriptions exist to explain the rapid development of the interes
disscus the applicability of operating cycle in vegetable in uganda
Determine the meaning of Reportable segments Reportable segments are operating segments or aggregations of operating segments which meet specified criteria(core princ
The case of McKesson & Robbins scandal (1938) was happen due to internal fraud. This case is also happen by the faulty work of board of directors. The organization of McKesson & Ro
Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!
whatsapp: +91-977-207-8620
Phone: +91-977-207-8620
Email: [email protected]
All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd