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.
Can a corporation have too much working capital? Explain. A firm can have very much working capital if it is losing the opportunity to invest in high returning fixed assets and
what is the relevance of virements to public sector accounting
The purchase price is expected to be in the region of £30m - £40m now (year 0 ?? 2003) and further cash flow effects might include: ?? Annual cash inflows from New You ?? in a rang
Role of Custodians The Securities and Exchange Board of India on 5th May, 1996, through its notification No.S.O.344 (E) has issued the SEBI (Custodian of Securities) Regulation
QUESTION i) Distinguish between intermediated and market finance using illustrative examples. ii) Differentiate between the main characteristics of Debt and Equity. iii)
A Ltd sells goods at Rs.10.P.U. Its variable cost Rs.7.P.U and fixed cost amount to Rs.1,70,000 it finances all its assets by equity funds. It pays 40% tax on its income. Z Ltd is
1. In this query the implied volatilities are calculated by using a risk free interest rate of 2%. The computation are summarized by the following figure. 2. The computatio
Explain why warrants are rarely exercised unless the time to maturity is small? Warrants are seldom exercised till the time to expiration is small because the market price of the
a) Year 2 Current Ratio = 700 / 300 = 2.33 : 1 Year 1 Current Ratio = 500 / 200 = 2.5 : 1 Year 2 Acid Test = (700 - 350) / 300 = 1.17 : 1 Year 1 Acid Test = (500 - 250) / 200 =
State the Example to calculate the present value 2, 00,000 $ is the amount which you require after 20 years for your retirement. How much must you invest now at 5% per annum co
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