Hi all, I have something I hope I might be able to get some advice on. I have to build a model showing the investment of (let’s say) $50,000,000 in a portfolio of corporate notes/bonds of varying maturities (up to 12 months), with regular outflows from the portfolio. I was planning to construct a schedule of estimated cash flows for each investment and calculate the HPY and EAY for each investment. I was just wondering how I would go about calculating an overall portfolio return? The only requirement I have to meet is that it must return 75 basis points above the bank rate. How would I go about showing that the portfolio was returning above the benchmark? I apologise if this seems a bit lame, but I’ve not had to do this before and I haven’t seen any other models in real life like this before (this is a new area for the firm I work for). Any advice much appreciated. Thanks
well each bond is going to have a payment schedule, coupon and then the maturity principal. So if it were me I would map out the cashflows and their timings, then calculate the return for the time periods. The HPY is going to be all those payments and gains over your original amount for whatever time period you choose to measure. You can use the equation to get EAY.
Thanks for the reply tvPM, that’s pretty much what I had in mind.