Total return analysis, Financial Management

Assignment Help:

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).


Related Discussions:- Total return analysis

Classification of working capital, Q. Classification of Working Capital? ...

Q. Classification of Working Capital? Classification of Working Capital: - Working Capital is able to be classified in two ways firstly on the basis of concept and secondly on

Callability, It is a feature that allows the issuer to redeem its bon...

It is a feature that allows the issuer to redeem its bonds before maturity. Almost all convertible bonds come with this feature. Due to this feature, bonds carry

Preparing financial statements using accrual basis, Question: On a pilo...

Question: On a pilot basis a Government Department, PPO, is preparing its financial statements using accrual basis. The following information is provided: The following bala

Immunization, In 1952, to provide equilibrium between assets and liab...

In 1952, to provide equilibrium between assets and liabilities of insurance companies, Frank Redington, an English actuary, proposed interest rate immunization te

Full, Full, Fair and Adequate Disclosure The architecture of business...

Full, Fair and Adequate Disclosure The architecture of business has evolved from proprietorship to partnership to joint stock companies or publicly held companies. Except fro

Explain difference between business risk and financial risk, What is the di...

What is the difference between business risk and financial risk? Business risk considers to the uncertainty a company has regarding to its operating income (as well termed as ear

Eurobond, Eurobond A corporate bond denominated in U.S. dollars or oth...

Eurobond A corporate bond denominated in U.S. dollars or other hard currencies and sold to investors outside the country whose currency is used. Eurobonds have become an impor

Time value of money, In order to provide for R10 million to build a new war...

In order to provide for R10 million to build a new warehouse in 5 years time, a company plans to make equal payments at the end of each six months into a fund which earns 9% per ye

Capital budgeting, #how to calculate initial investment cash flows ..

#how to calculate initial investment cash flows ..

Cvp, Info on applying CVP to product mix limiting factors

Info on applying CVP to product mix limiting factors

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

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!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd