Total return analysis, Financial Management

A trade is assessed on the basis of its performance. Performance can be defined as the expected total return over and above the investment horizon of the trade. The returns would be from: coupon payment, the change in the value of the bond, and reinvestment income from reinvesting coupon payments and principal repayment.

For example, an investor purchases a security for Rs.1000 and expects a return of Rs.60 over a 1-year investment horizon. The expected total return is 6% (=Rs.60/Rs.1000). Suppose funds from repo markets are used to purchase securities. The interest cost is to be deducted from the total returns. For example, out of Rs.1000 investment, Rs.900 is from borrowing and only Rs.100 is from investor's own funds. Say the cost of borrowed funds is 5% that would amount to Rs.45. Now the total return would be Rs.60 - 45 = Rs.15. The total return would be 15% (=15/100).

Posted Date: 9/11/2012 1:45:15 AM | Location : United States







Related Discussions:- Total return analysis, Assignment Help, Ask Question on Total return analysis, Get Answer, Expert's Help, Total return analysis Discussions

Write discussion on Total return analysis
Your posts are moderated
Related Questions
As the number of companies borrowing directly from the capital market increases, and as the industrial environment becomes more and more competitive and demanding,

What are the pros and cons of commercial paper relative to bank loans for a company seeking short-term financing? Commercial paper is generally a cheaper source of short-term f

How can we calculate ration analysis in financial management?? Determine the ration analysis? Need assignemt help on this topic

Explain the term- Trade receivable days (turnover) [Yearend trade receivables/Credit sales (or turnover)] x   365days It is the average length of time taken by customers t

Types of Mutual Funds The objectives of a Mutual Fund are as follows: To provide an opportunity for lower income groups to acquire property without much difficulty in the

(a) Lonesome Gulch Mines has a standard deviation of 42% per year and a beta of 0.10.  Amalgamated Copper has a standard deviation of 31% a year and a beta of 0.66.

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?

What do you understand by financial viability of the organization? 2 : Define Following accounting and financial terms: Asset Liability Equity Income Expense

Common-size Analysis • Prepare a Common-size Analysis for the Balance Sheet and Income Statement • This should include about 12 accounts in the Balance Sheet and about 10 Inc

The holder of a corporate debt instrument is preferred to equity shareholders in the bankruptcy proceedings. However, secured/senior creditors are preferred to no