Reading 14, Question 12 first, only, expected, required, compare

nitoha

In Volume2 - Page 153, they provide after-tax expected return and after-tax yield. Referring to Question 12, C, ii, the required return in the first year is 7.5% (answer on page 166). Should we not compare this to total of after-tax return and yield, why only the return?

agulani

Thanks for the reply- but in the answer (on page 166 of volume 2) they are looking for a minimum return of 7.5% and they say that only portfolios B and C meet this requirement. Hence they are only comparing to the “After-tax expected return”. They are not comparing to the total of return and yield - so am a bit confused.
Thanks,
Manish

tarik64

A general tip: when in doubt, check what the numbers say/imply.
A brief look at the table gives out plenty clues that the (after-tax) return has already included yield.
- Port A only has bonds – total return = yield
- Total return of port A consistent with given total return (first column) of its components.
- After tax return of 4.2% reasonable number of a high quality bond portfolio. If yield NOT included in this number – after tax return = 4.2+4.2= 8.2% way too high an after-tax return for a AA/US T bond portfolio.