Bond Total Return Analysis
Part 2: Managing Bond Portfolios (Total Return Analysis)Details of the US Treasury bond (912828M7) selected:Maturity = 11/30/17Term = 30 YearsDate of Settlement (one-year horizon) = 11/30/16Yield (as on 11/30/16), Y1 = 0.891%Bond Value (as on 11/30/16), BV1 = $99.997Current Date = 10/02/17Yield (as on 10/02/17), Y2 = 0.969%Bond Value (as on 10/02/17), BV2 = $99.985Frequency of coupon payment = Semi-annualDay count convention = Actual/365Face Value = $100Coupon Rate = 0.875%Note – It has been assumed that the coupons will be reinvested at the same yield at which bond was bought initiallyTotal Return = x 100[pic 1]TRA of the bond for two different horizon periods (e.g. one-year horizon and current date)For one-year horizon (11/30/16):Interest Income = [pic 2] = [pic 3]
= $0.876Total Return = x 100[pic 4] = 0.879%For Current Date (10/02/17):Interest Income = [pic 5] = $0.0703Total Return = [pic 6] = 0.073%TRA of the bond for two different yield shifts (e.g. a 25 basis points and 50 basis points shift):For a 25bps yield shift (considering 1-year investment horizon)For 25bps upward shift;Reinvestment Rate = 1.141%Thus, Interest Income = [pic 7] = $0.877Total Return = x 100[pic 8] = 0.88%