FIN 502 : CHAPTER 14 principles of investment.docx

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beigefish258

21 Apr 2012

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Saving: money that you did not spend; money left over after your consumption. Investing: using the savings that you have and putting it in investments to earn a rate of return. Important characteristics return, risk, liquidity, marketability, term (short term, long term), management, tax considerations, divisibility. Income return: periodic cash flow that the investor receives. Capital gain return: generated when you sell it for a price higher than what you paid for it. Total return: income return plus the capital gain return. R or (hpr) = p1 p0 + d / p0. P0 = price at the beginning of the holding period. P1 = price at the end of the holding period. D = income return (interest or dividend) during the holding period. Realized rate of return: rate of return that actual occurred in a past period. Expected rate of return: return that is expected to happen in the future. E(r) = e(p1) p0 + e(d) / p0.

Related Questions

The YTM on a bond is the interest rate you earn on your investment if interest rates donât change. If you actually sell the bond before it matures, your realized return is known as the holding period yield(HPY).

a. Suppose that today you buy an annual coupon bond with a coupon rate of 8.2 percent for $845. The bond has 10 years to maturity and a par value of $1,000. What rate of return do you expect to earn on your investment? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Rate of return 10.75%

Two years from now, the YTM on your bond has declined by 1 percentage point, and you decide to sell.

b. What price will your bond sell for? (Do not round intermediate calculations and round your answer to 2decimal places, e.g., 32.16.)

Price $ 922.5

What is the HPY on your investment? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Holding period yield %

I need the holding period yield. I entered 10.81% and tried 11.81% but they were wrong. Please give me the correct answer. Thanks

Suppose that today you buy a bond with an annual coupon of 9 percent for $1,110. The bond has 16 years to maturity. What rate of return do you expect to earn on your investment?

b-1.

Two years from now, the YTM on your bond has declined by 1 percent, and you decide to sell. What price will your bond sell for?

b-2.

What is the HPY on your investment?

ceruleancricket221

2. If you received dividends of $165 during the year, what was your dividend yield? What was your total return for the year? 3.72%; 15.61%

Consider a series of returns for a 10 year period:

Year	Return
1	3.5%
2	13.3%
3	-2.7%
4	-23.5%
5	13.9%
6	24.3%
7	8.7%
8	2.1%
9	33.2%
10	-8.9%

3. What is the average rate of return? 6.39%

4. What is the standard deviation of returns? 16.28%

5. What is the holding period return for the 10 years? (Hint: If you started with $100, how much would you end up with after 10 years?) 66.42% (youâd end up with $166.42)

6. What is the geometric average rate of return? 5.23%

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FIN 502 : CHAPTER 14 principles of investment.docx

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