Question

Sioux Financial Corp. has forecasted its bond portfolio value for one year ahead to be $105 million. In one year, it expects to receive $10,000,000 in coupon payments. The bond portfolio today is worth $101 million. What is the forecasted return of this bond portfolio?

Answer 1

13.86%

Explanation:

Data provided in the question:

Forecasted value bond portfolio one year ahead = $105 million

Expected value to be received = $10,000,000

Worth of bond portfolio today = $101 million

Now,

The Forecasted return is calculated as;

= [(Coupon + closing value - opening value) ÷ (Opening value)] × 100%

on substituting the respective values, we get

Forecasted return =
`\frac{\textup{(10000000+105000000-101000000)}}{\textup{101000000}}*100`

or

Forecasted return = 0.1386 × 100%

or

Forecasted return = 13.86%