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Bond's potential returns are calculated using measures like Yield to Maturity (YTM) and cash flow yield. Both these measures are not free from shortcomings. The problem with YTM is that we assume that the coupon payments are reinvested at a rate equal to the YTM and the bonds are held up to maturity. By these assumptions, we are ignoring reinvestment risk and interest rate risk. Reinvestment risk is the risk resulting from the fact that interest or dividends earned from an investment may not be reinvested in such a way that they earn the same rate of return as the invested funds that generated them. Interest rate risk is the risk of having to sell a security before its maturity date at a price less than the purchase price. Cash flow yield also ignores reinvestment and interest risk. It assumes that the projected cash flows are reinvested at the cash flow yield and the mortgage-backed or asset-backed securities are held until the final payout based on some prepayment assumption. The reinvestment risk is of utmost importance to mortgage-backed and asset-backed securities as payments from these securities are monthly and both the principal and interest should be reinvested. The assumption that projected cash flow is actually realized may not be true if the prepayment, default and recovery vary from such assumption.
What can a financial institution often do for a surplus economic unit that it would have difficulty doing for itself if the surplus economic unit (SEU) were to deal directly with a
XYZ Ltd is a group of doctors, dentists, professional sports players and celebrities with excess funds who wish to find small companies with great innovative ideas and invest in th
Discuss the implications of the interest rate parity for the exchange rate determination. Answer: Presume that the forward exchange rate is roughly an unbiased predictor of the
Q. What do you meant by Yield? Investment should be in such securities which yield the highest return. However, safety should not be sacrificed at the expense of yield. How
Q. Can you explain Dispersion method? Dispersion method help to assert risk in receiving a return on investment. The greater the potential dispersion, the greater the risk. One
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type of assets for ppt from t.y.bom com student in commerce department in financial management
Franchise (licensing) - Granting or licensing of the right to use systems, expertise,brandsknow how etc. to another organisation, generally in return for a profit share
Considerations for the financiers of MBOs Support of MBO will rely on various factors: The reason for sale of business. Is it falling on hard times? Is group divesting to co
Q. Show the Accounting Profit Criteria? Accounting Profit Criteria: - Under accounting profit criteria there is merely one method for making capital expenditure decisions. This
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