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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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    • Thank you for the civil post.

      I see you still haven't figured out how to annualize your returns correctly. JMHO, but barring a default, you're going to make about 10.5% annualized. That assumes you can successfully compound the semi-annual interest, that you can immediately reinvest each coupon at 85% of par. If you can't, then you'll make a little less. Do you understand WHY that bond was issued with a coupon bearing 8.7% annual interest and WHY the market prices it at 85% of par? That's your reward to taking on the some very real risks. You are being paid in advance for a potential default.

      I do agree with you with regard to the following comment:
      « You will be lucky to get a 10% average return on DIA ... »

      I'll guesstimate that the DJIA's 10-Year annualized return over the next decade will be about 5%

      According to BARRON'S the DJIA's Price to Dividend ratio, P/D, was 38.6 as of Friday, December 9, 2011.

      The DJIA's median YEAREND closing P/D ratio over the last 82 years (1929-2010) was 23.4, over the last 51 years (1960-2010) it was 28.8.

      The DJIA has grown dividends per share (compound annual growth rate) over the last 81 years (1929-2010) by 4.9%, over the last 50 years (1960-2010) by 5.2%.

      So the DJIA's P/D ratio at the start of decade is 38.6 and I'll assume that it ends ten years later at 30.0 (reversion to something closer to the median). Assuming that dividends per share grow 5% per year (which is probably too optimistic, considering the current economic situation) that suggests an annualized total return of about 5.4%.

      =(1+5%)*(1+RATE(10,1.0,-38.6,30.0))-1

      JMHO, but the DJIA is likely to just stagnant over the next decade, frustrating both the bulls and the bears.

      It wouldn't surprise me in the least, if ten years from now the DJIA is trading at 15,000.

      =30*315.57*(1+5%)^10

      GLTA

    • I only bought Albertson about a years ago so I am just getting started 10.5%. Next year will be 11.6% return. 3rd year 12.8% You woulda flunked 6th grade algebra. Few people understand how powerful compounding is. DIA is way overvalued compared to 10% compounded.You will be lucky to get a 10% average return on DIA vs 25% average on 10% compounded.

    • « ... 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.

    • « 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'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.

    • 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.

    • 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 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, 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.

    • "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.

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