- “Tom measures a bond’s expected total return using a single set of assumptions in its horizon analysis. This is the most appropriate method to compute a bond’s total return over an investor’s time horizon. In a recent expected total return calculation, for example, Vertex used, for a single bond, a beginning price of $103, a 5 percent coupon paid semiannually, an expected price at the end of one year of $102.5, and an annual reinvestment rate of 2 percent.” What is the total return?
(107.525-103)/103 = 4.393%
how many years is this bond? i dont see how you get this math…
i get BEY: 4.345%
Oops! Forgot to divide pmt by 2!
4.393% is the answer I get as well.
The CFA official answer to this question is the BEY return. I calculated EAY instead.
The reason I post this question is because when CFAI asks for total return, do we automatically convert the EAY to BEY?
I believe unless they specifically use the word effective, go with BEY
show me the math on the bey… I forgot how to do that.
[(EAY+1)^(1/2)-1] x 2=BEY