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.
(a) One could obtain a market arbitrage position as follows: buy Honeywell shares as well as sell General Electric shares. If the merger gets place the Honeywell shares will conve
Describe the sales forecasting process. It is a group effort. Sales and marketing personnel generally offer assessments of demand and the competition. Production personnel genera
The process of valuing a callable bond is similar to that of an option-free bond, except for one thing - when the call option may be exercised b
IAS 14 "risk and return approach" Advantages Highlights the profitability, risk and returns of each segment. Information is more comparable with other entities.
A-Credit is the highest credit grade existing as allotted to a borrower by a lender. Lenders use a credit grading system to make the borrowers eligible. The more the borrower's cre
The Federal Minister for the Environment is worried about the Greenhouse Effect, one outcome of which would be that Adelaide would have a subtropical climate by the year 2015. This
Potential drawbacks of divestment - There may be some loss of economies of scale. Fixed overheads would have a lower capacity to recover them. - Cash generated may not be
Case Study: Volatility Trading (a) The understanding in this case study deal with Convertible as well as Reverse-Convertible bonds. These are interesting instruments by themsel
Q. Show the Compound Value of the Single Flow ? Compound Value of the Single Flow (Lump Sum):- The process of computing future value becomes very cumbersome if they have to be
Q. Cost of Holding Inventories? The holding of inventories engages blocking of a firm's funds. The various risks as well as costs in holding inventories are as below: (1) Ca
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: +1-415-670-9521
Phone: +1-415-670-9521
Email: [email protected]
All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd