Question

Assume that a year ago, you invested $10,000 in a bond fund, purchasing 1,000 shares at$10.00 each. Assume also that the bond fund was advertising a yield of 10%, or $1.00 per share, which was maintained for the entire year. But suppose that in the meantime, interest rates have risen so that now bond funds with similar maturity and credit quality yield 11%. As a result, your bond fund is now selling for $9.00 per share. Ignoring interest-on-interest and commission costs, what is the total return on your bond fund investment for the past year?

C. 5%

D. 0%

B. 11%

A. 10% A bond's __________ estimates the total amount that a bond will earn over the entire life of an individual bond, from all possible sources of income—coupon income, interest-on-interest, and capital gains or losses due to the difference between the price paid when the bond was purchased and par, the return of principal at maturity based on a number of assumptions regarding the holding period, reinvested income and interest rates over the life of the bond. C. yield to maturity (YTM) D. holding period return A. current yield B. coupon rate The minimum variance portfolio is that portfolio which __________ the efficient frontier. C. is in the middle of A. is at the end of B. is at the beginning of D. is not on __________ are a technical analysis tool that use the standard deviations of previous prices as a measure of price movement away from a moving average. When the price is at or above the upper band, the stock may be overbought. If, however, the price is at or below the lower band, the stock may be oversold. B. Relative strength indices A. Trend lines D. Dividend growth expectations C. Bollinger Bands

Answer 1

a. Total return on bond

Total Return On bond = [(End value of prinicpal + Coupon Interest) - Beginning value of principal] / Beginning value of principal

End value of Bond = 1000 * 9 = 9000

Coupon interest = 1000 * 1 = 1000

Beginning value of bond = 1000 * 10 = 10000

Total Return = [(9000+1000) - 10000] / 10000

= [10000 - 10000] / 10000 = 0

Total return on bond fund investment in past year is 0%

b. A bond's Yeild to Maturity estimates the total amount that a bond will earn over the entire life of an individual bond, from all possible sources of income—coupon income, interest-on-interest, and capital gains or losses due to the difference between the price paid when the bond was purchased and par, the return of principal at maturity based on a number of assumptions regarding the holding period, reinvested income and interest rates over the life of the bond.

c. The minimum variance portfolio is that portfolio which is in the middle of the efficient frontier.

Showing that with minimum risk which portfolio earns the maximum return.

d. Bollinger Bands are a technical analysis tool that use the standard deviations of previous prices as a measure of price movement away from a moving average. When the price is at or above the upper band, the stock may be overbought. If, however, the price is at or below the lower band, the stock may be oversold.