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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.
XYZ company produces three products X,Y and Z. for the coming accounting period budgets are to be prepared based on following information. Budgeted Sales Product X 2,00
What is the decision rule for accepting or rejecting proposed projects while using internal rate of return? While the internal rate of return is greater or equal as compare to
Testing the Hypothesis To test the null hypothesis, we compare the observed and the expected frequencies. If the actual and the expected values are nearly equal to each other w
Carrefour & Tesco
Q. What do you mean by Sarbanes-Oxley? Sarbanes-Oxley (SOX) - Sarbanes-Oxley Act was signed into law on 30 July 2002 by President Bush. Act is designed to oversee the financial
Assemble all other inputs/assumptions based on the past data. Use your best judgment to have the most reasonable estimates. Tasks 1. Prepare an Excel spreadsheet containi
Organizational Cost Drivers It is the cost consequences that result from managerial choices concerning the company of activities as well as the involvement of persons inside an
How Howan acquisition should be implemented 1. Directors of the target company must be approached first and a firm offer of a price made on condition that all due diligence wor
Question: (a) Explain and discuss the hedging strategies using futures (b) Boeing (an American company) delivered on 1st September 2008 an airplane to a Canadian company.
Q. Evaluate Cost of Preference Share Capital? Cost of Preference Share Capital: - A fixed rate of dividend is to be paid on preference shares. However unlike debt the dividend
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