Discuss how investors arrive at a desired rate of return

Question

PART 1

1. List the six components or sources of return for which proper analysis of an investment's return must include

2. Briefly explain how a simple arithmetic average return for an investment over a 2-year period can overstate its "real" rate of return

3. Discuss the implications of the following statement: "It's not how much you earn on an investment, it's how much you keep"

4. Explain the shortcomings of the IRR Method, especially as it relates to cash flows emanating from an investment

PART 2

1. The coupon rate is also known as the stated rate. How is this interest generally paid? Is there any time when no cash flow is received from a bond?

2. Discuss how investors arrive at a desired rate of return for a bond

3. Explain why a bond's yield-to-maturity is the "effective rate" that the holder of the bond expects to receive

4. Briefly discuss the relationship between the formulas used to calculate (a) the after-tax yield, and (b) the taxable equivalent yield of a bond

PART 3

1. Briefly explain why, in valuing a stock, the variable of cash flow "estimation" may pose a problem when calculating its intrinsic value

2. Distinguish between the terms "capitalized earnings" and "capitalization rate"

3. Describe the relationship between a dividend payout ratio and a retained earnings ratio and determine whether one formula be derived from the other

Answer 1

On the basis of the topic analysis of an investment's return, write a paper in which you have to respond to the following questions following the APA instructions. Question 1: List the 6 components or sources of return for which proper assessment of the investment's return must comprise? Question 2: In brief describe how a simple arithmetic average return for the investment over a 2-year period can overdo its ‘real’ rate of return? Question 3: Illustrate the implications of the given statement: ‘It's not how much you earn on the investment; it is how much you keep’. Question 4: Describe the shortcomings of the IRR Method, particularly as it associates to cash flows originating from the investment? Question 5: The coupon rate is as well termed as the stated rate. Explain how this interest is usually paid? Is there any time if no cash flow is acquired from a bond? Question 6: Illustrate how investors arrive at a desired rate of return for the bond?