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.
How are financing costs generally incorporated into the capital budgeting analysis process? Financing costs are generally captured in the discount or hurdle rate while doing NPV
State the term- Dealing with general risk Part of the strategic decision making process is to analyse all risk factors involved with pursuing a specific course of
Timing of Financial Reports: Just as the actual report requirements differ depending on the requirements of the stakeholder that will be using them, so too will the timing of t
Q. Firms operation and financing decision? Firms operation and financing decision risks or the variability of returns also results for the decision make within the company. Ris
Identify whether the following items belong on the income statement or the balance sheet. a. Interest Expense IS l. Cash BS b. Prefer
Explain about the primary and secondary markets. Primary and secondary markets: A primary market is a financial market wherein new matters of financial securities (both s
CLASSIFICATION OF BUDGETS Budgets can be categorized on the basis of several bases. There are three important bases for classifying budgets. They are - functions, time, and
Is the difference between the market value of the shares (capitalization) and their book value a good measure for the value creation in a company since its foundation? Value cr
Is it possible to make money in the stock market when the quotations are going down? What is credit sale? There are three simple moves to make money when prices are going down:
SAM Technology had AED 640,000,000 of retained earnings on December 31, 2012. The company paid common dividends of AED 30,000,000 in 2012 and had retained earnings of AED 500,000
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