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.
Project Plan for my new business venture is attached) 1. Your task is to take a look at every of the operational areas of the intended business, and verify what financial i
How are the members of the board of directors of a corporation chosen and to whom do these board members owe their primary allegiance? The Members of a corporation's board of d
how would you judge the potential profit of Bajaj Electronics on the first year of sales to Booth Plastics and give your views to increase the profit?
Duration and Convexity of MBS A graph decpicting the price of the security under study and the interest rates helps in assessing the duratio
Genital and Reproductive Function: J.Y. is a 43-year-old woman who has detected a lump in the upper outer quadrant of her left breast while performing her monthly self-breast
Suppose the market portfolio is equally likely to increase by 30% or decrease by 10%. a. Calculate the beta of a firm that goes up on average by 43% when the market goes up a
Classification of finance and abrief description of each source of fund
Enron did not manages its trade account receivable in significant manner that made huge financial loss for the organizations. Hence, the management faced biggest fraud due to the f
Illustrate the steps of Creative accounting Creative accounting include: 1 Timing of transactions. Delaying or hurrying up the despatch of invoices at the yearend to decr
As liberalization is gathering momentum, corporate treasures and merchant bankers are in the process of devising new products to suit the needs of investors and c
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