Mock 2010 PM: A beginning price of $103, a 5% semiannual coupon, an expected price at the end of one year of $102.5, and an annual reinvestment rate of 2 percent. What is the one-year expected total return? My answer is: (102.5+2.5+2.5x1.01)/103 - 1 = 4.39% The guideline answer is: 102.5+2.5+2.5x1.01 = 107.525 (107.525/103)^0.5 - 1 = 0.02173 2.17% x 2 = 4.35% Do we have to use BEY for total return?
Have the same question…
It seems like BEY is “total return” for bonds. Only calculate EAY if they specifically ask for it.
My guess is that the simple interest will get you close enough the right answer. My Square key is practically broken on my BA II plus, so I did simple interest.
I have about $50 USD left to buy a calculator and some pens.
There’s only 2 ways where they can ask this question
(FV + div /2 - Price ) / Price
Or the one mentioned above, know them pretty well cause its a waste of easy question if you dont know how to do it.
Bilal, can you pls elaborate on the formula you mentioned with an example ?
Yes.
Annualized return = EAR. Total return = BEY.
funny how in the books they just show you the semiannual total return ( page 24, vol 4 )