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  • joenorth0328 joenorth0328 Oct 29, 2011 6:19 PM Flag

    25.16 % per year average for 19 years on Albertson Bonds

    That is, if you reinvest the intertest every 6 months.I bought the 2030 8.7% Albertson Bonds at an average price of about 85 giving me over a 10% real yield. So even if they are at 85 in 19 years I still get my 10%. Going to a compounding table for 10% compounded every 6 months we get a $538.55 gain on a $100 investment or $638.55 total including a original $100 investment.If you divide $538.55 by 19 years my average gain per year would be $28.34 or 28.34% on $100. Comprende??? This is with simple compounding. Forget YTM. If you add add in $15 gain from $85 to $100 par and total is $653.55 on a $100 investment would make it slightly more than 28.34%. Forget that. Take 28.34%. Thats what I would get average for 19 years if held to maturity 2030. Granted the actual yield at $92 on 8.7% yield is only about 9.45% if you bought now.Using this 9.45% we get a $477.98 gain on $100 or $25.16 average a year or 25.16% a year. Now if you cant figure this out I feel sorry for you.I used simple online calculators. The 20 year treasury is now at about 3.4% So 19 years at 3.4% compounded gives us an $89.70 gain or 4.72% average yield for 19 years. The 20 year treasury yield is lame. There are many corporate bonds yielding around 10% such as Albertson,Sears Acceptance, Appleton Papers,etc So i suggest to take your $$$ out of these TLTS . They will be lucky to keep up with inflation and taxes.

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    • Yes but the first years are much lower. But you are right 10% compounded is hard to beat. Even with dividends,dont expect the Dow to match that 10% even in the next year

    • Joe, I ran a 30 year simulation (5/1/2000 to 5/1/2030) in Excel. I'm getting an annualized return of 10.5% and that's assuming every semi-annual interest payment could actually be immediately reinvested by buying additional bonds at 85% of par. Correct me if I'm wrong, but I don't believe it is possible to buy fractional "shares" of a bond. Something else to consider, that bond has a credit rating of B. It's a "junk" bond.

      • 2 Replies to jad1148
      • I am correcting you. You did not compound the interest every 6 months. The bonds pay you interest every 6 months.Please reread my original post.I guess you dont comprende If you have $100,000 face value of the bonds-You bought at $85,000 with a coupon payment of 8.7% or $8700 per year. You take $4350 each 6 months and reinvest which would be $5000 more face value of bonds at $87 actually $4350 would buy 5 bonds at $870 per bond-assuming they are still at $87. Agreed after awhile you might not be able to buy at $87 anymore,which would lower your returns,unless you find other bonds paying 10%.But lets assume this since I have already lost you,Just simplify and look at a 19 year compounding table for 10%.It is true you can only buy the bonds in increments of $1000 for one bond. So you would not be able to invest any amounts over $1000. However if you are diversified like me you merely save the amount over $1000 . I have interest from different bonds paying almost every month.Different bonds pay interest on different dates I just reinvest them . My average interest is actually about 11%. So I will beat the 25% assuming no defaultsI know I have lost you. You dont understand compounding. As for B rating yes thats what it is,but I find it a remote possibility that SVU will default.Im sorry!! Im not here to educate people with closed minds.

    • "Here's the correct way to annualize that data:

      TWO Years, annualized = ($103,781.77/$85,000.00)^(1/2)-1= 0.105 = 10.5%" thats your statement. Im glad you are not my accountant

      HUH!!!!! LMAO its 22.1% You are really a dummie!!!! I just gave you the correct figures

      And from your table if we add up all the default rates for 16 years on B rated S&P and average for 16 years we get 2.58% including 2008 which was a disaster If we dont include 2008 its 1.92% for 15 years

      Year AAA AA+ AA AA- A+ A A- BBB+ BBB BBB- BB+ BB BB- B+ B B- CCC to C
      1993 0 0 0 0 0 0 0 0 0 0 0 0 0 0 6.25 0
      1994 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1.85 0 0
      1995 0 0 0 0 0 0 0 0 0.43 0 0 0.98 0 0 0.95 0 52.63
      1996 0 0 0 0 0 0.15 0 0 0 0 0 0.61 12.50 0 0 31.03
      1997 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 20.69
      1998 0 0 0 0 0 1.04 0.91 0 0.19 0 0 1.03 0 0 2.34 0 22.58
      1999 0 0 0 0 0 0 0.77 0 0 0.39 0 0 0 0 1.54 0 19.35
      2000 0 0 0 0 0 0 0 0 0.11 0 0 0.61 0 0 2.19 0 5.26
      2001 0.05 0 0 0 0 0.12 0 2.22 0 0.86 0.83 0.55 0.91 2.00 2.69 3.27 26.87
      2002 0 0 0.06 0 0.27 0.14 0 1.77 0.19 0.70 1.26 2.03 1.12 2.50 3.60 23.24 27.03
      2003 0 0 0 0 0.19 0.03 0.16 0.20 0.60 0.50 0.75 0.84 1.43 3.28 1.64 5.15 32.58
      2004 0 0 0 0 0 0 0 0 0.16 0.17 0.50 0.81 0.29 0.79 2.23 3.56 13.79
      2005 0 0 0 0 0 0 0 0 0.08 0.06 0.15 0.14 0.45 0.33 1.34 2.53 16.08
      2006 0 0 0 0 0 0 0 0 0.06 0.20 0 0.33 0.36 0.26 0.36 1.42 19.18
      2007 0.04 0.03 0.07 0.08 0 0.10 0.21 0.48 0.47 1.27 5.07 1.61 1.53 0.68 1.55 1.47 24.11
      2008 0.53 0.35 0.57 1.15 1.15 0.87 1.42 2.27 1.26 3.45 5.60 4.21 5.07 8.53 12.84 10.28 56.92

      I dont think Supervalu will default
      Make your own conclusions.

      PS Even if they do default there will likely be some recovery.
      PSS I proved compounding to you and you deny it. I refuse to answer any more of your stupid posts.

    • Joe, once again, you prove that you are incapable of performing even the simplest financial calculation correctly.

      For your own sake, please share the following two explanations with someone you trust, who also actually knows what they are doing (i.e., someone who teaches mathematics at either the high school or community college level).


      [1] Annualizing Returns

      Joe's investment portfolio is currently worth $100,000. Ten years ago it was worth $50,000. He neither added additional capital to, or withdrawal capital from, the portfolio during the ten year period.

      Question: What was Joe's annualized return for the decade?

      Answer: = ($100,000 / $50,000 ) ^ ( 1 / 10 ) - 1 = 0.0718 = 7.18%

      Hint: If you know the "Rule of 72" you could have estimated that the answer was about 7%, i.e., a double over a ten year period.

      http://en.wikipedia.org/wiki/Rule_of_72


      [2] Compounding Probabilities

      You have a deck of 54 playing cards (include the 2 jokers).

      REPEAT
      Carefully and randomly shuffle the deck.
      Draw a single card at random from the deck.
      If that card is either of the jokers then assume that your bond has defaulted and that you have lost the money you had invested in it.
      UNTIL the game has been played a total of 19 times.

      Note that the probability of drawing a joker is two in fifty-four, so I am simulating a one year default probability of about 3.7%. You must play this game 19 times to represent the 19 consecutive years that you intend to hold that bond while you wait for it to mature.

      Question: What is the likelihood that you will draw a joker at least once during the 19 trials?

      Answer = 1 - ( 2 / 54 ) ^ 19 = 1.00 = 1 - 6.37e-28 = ~1 = ~100%

      Obviously it is possible to play this game and not draw a joker, but the likelihood is that you will.

    • You are the joker. My math is correct. Im not calculating annualised return. I am calculating average return. I gave you the calculations. And I will take the risk of Albertson going BK. Highly unlikely. Your 3.7% average is too high according to the article you yourself referenced- I used the table and calculated 2.58% per year AVERAGE for 16 years for B rating.AND even if BK comes there will likely be recovery when they sell assets or restructure. Chill out. Quite frankly you are proving your own self wrong and wasting my time.I am removing myself from this stupid discussion

    • Joe, I did make a mistake in the second example, the correction is below.

      That's the difference between you and me. When I make a mistake I immediately own up to it and don't stonewall out of pure pride.

      Here is the CORRECTION.

      [2] Compounding Probabilities

      You have a deck of 54 playing cards (include the 2 jokers).

      REPEAT
      Carefully and randomly shuffle the deck.
      Draw a single card at random from the deck.
      If that card is either of the jokers then assume that your bond has defaulted and that you have lost the money you had invested in it.
      UNTIL the game has been played a total of 19 times.

      Note that the probability of drawing a joker is two in fifty-four, so I am simulating a one year default probability of about 3.7%, which is, by the way, way too generous for your bond. Look at the table in the link from my previous post, "Standard & Poor's One-Year Global Corporate Default Rates By Refined Rating Category, 1981-2008". Use the correct table, you're holding a corporate bond not a financial (bank) bond! The one-year default rates for a B rated bond are: 7.28% mean, or 6.27% median. You must play this game 19 times to represent the 19 consecutive years that you intend to hold that bond while you wait for it to mature.

      Question: What is the likelihood that you will draw at least one joker during the 19 trials?

      Answer = 1 - ( 52 / 54 ) ^ 19 = 1.0000 - 0.4882 = 0.5118 = 51.18%

      Obviously it is possible to play this game and NOT draw a joker. But the chances are you will. It is pretty much equivalent to a coin toss (50:50)!

    • YOU make a mistake??? Im surprised as you make tons of mistakes.
      Hahaha you cant even get the figures right you are the joker LOL Really its funny. I could care less what you think.

    • « I'm not here to educate people with closed minds. » --- 20-Nov-11 06:00 pm.

      « I refuse to answer any more of your stupid posts. » --- 24-Nov-11 11:43 am.

      « I am removing myself from this stupid discussion. » --- 24-Nov-11 03:21 pm.

      « I could care less what you think. » --- 25-Nov-11 02:36 pm.

      LOL, Joe!

      And yet, you keep coming back for more.

      You want to know what I believe?

      I believe you're scared --- scared that I'm right and that you're wrong.

      It's OK to be scared.

      Being scared is a good thing.

      It makes you think.

      Maybe now you'll do a little research and perhaps seek the advice of an impartation, knowledge person that might be able to help you understand your so-called "investment".

      Good luck with that illiquid junk bond.

      I have a feeling you're going to need it.

    • « I'm not here to educate people with closed minds. » --- 20-Nov-11 06:00 pm.

      « I refuse to answer any more of your stupid posts. » --- 24-Nov-11 11:43 am.

      « I am removing myself from this stupid discussion. » --- 24-Nov-11 03:21 pm.

      « I could care less what you think. » --- 25-Nov

      and Im not scared Ive averaged over 10% a year and it will compound. I dont need impartation or your stupid false comments to beat this crap DIA which is overvalued and unstable. At 12000 now its way overvalued.Im only commenting again because you are full of $%#@ And a smart $%# Scared of what. ????

    • « ... I've averaged over 10% a year ... »

      OK, Joe, now that you've admitted that you're not making 25.16% per year, I think we can end this thread.

      Something to think about.

      Warren Buffett was once asked for his opinion on Junk Bonds, and his reply was, ‘I think they’ll live up to their name.’

      Reference:
      http://sites.google.com/site/businessmodels/businessmodelsquotes


      Based on the following comment from your last post, you do appear to have a rather strong opinion with regards to DIA and its underlying index, the DJIA.

      « ... this crap DIA which is overvalued and unstable. At 12000 now its way overvalued. »

      Now, that's a subject that would be appropriate for this message board.

      If you want to discuss that, start a NEW thread with an appropriate subject line, e.g., "DIA is way overvalued". But if you do, you must explain WHY you believe it is overvalued.

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