Data on Bond Yields
12.
Using the following data on bond yields
|
This Year |
Last Year | |||
|
Yield on top-rated corporate bonds |
4.6 |
% |
7.6 |
% |
|
Yield on intermediate-grade corporate bonds |
6.6 |
% |
9.6 |
% |
Calculate the confidence index this year and last year.
Ans; This year Confidence index = 4.6%/6.6%. = 0.6969
Last year Confidence index = 7.6%/9.6% = 0.7916
You are evaluating a closed-end mutual fund and see that its price is different from its net asset value (NAV).
The fund has an expense ratio (ε) of 4.95% and a dividend yield (δ) of 4.00%. The fund has experienced a risk-adjusted abnormal return (α) of 6.05%.
By what amount (premium or discount) is the fund likely to trade relative to its NAV?
Use the equation:
(α−ϵ) / (δ + ϵ − α)
Ans; (6.05% - 4.95%) / (4%+4.95%-6.05%) = (1.10% / 2.90%) = 0.3793
