Calculate average annual return, Financial Management

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Q. Calculate Average Annual Return?

An investor buys a bond in 1978 maturity in 1980 at Rs.900. It has a maturity value of 10 years and par value of Rs. 1000. It fetches RS.90 every year. Calculate yield.

Solution:

Current Yield = Annual Cash Price 90, Purchase Price 900= 10%

Yield to Maturity = Average Annual Return Average Investment C=Annual Coupon P=Purchase of Price 1000 - 900

Average Annual Return = 90 +10= 100

Yield to Maturity = 100*100=10.5%

950

M= Maturity of par value of bond

N= Number of years remaining to maturity

Stock or Share

The return on stocks is measured by finding out dividend yield. Dividend yields can be estimated on expected yields as well as actual yields.


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