Return is the gain or loss in value that results from an investment. When we are looking to the future, we are likely speaking of expected return. An expected return is considered to be the most likely outcome or term ending value. The range of other possible returns represents risk, which is the possibility that a return will be different from the expected return . The length of time is defined by the context of the situation.
Compound interest is interest that accrues to a preceding period s interest.
It is calculated by adding the group s components, which are multiplied by their respective weights. Calculating multiperiod returns using the GMR will yield accurate results. Using the AMR may lead to inaccurate results because it omits compounding. Since the holding period is one year, the HPR is the same as the annual return for all parts of question 1-4. First, we need to compute the coupon income.