8/11/2019 FNCE Cheat Sheet Midterm 1

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erest rate risk = up when years up, coupon rate downmple annuity : PV=C((1/r)-(1/r(1+r)^t)ontinuous compounding : r annual =ln(1+r continuous )nnual yield =((1+ R/# periods per year) # of periods year ) - 1on-annual payment amount :(1+R) #payments peryear = (1+r)olve for R, then simple annuity using R, solve for Cayoff remainder of loan= PV of remaining paymentsaluing Share with non-annual dividend payment : Find PV ofch payment, P o= PV(1+r) time units remaining in year + PV(1+r) time units

iscount Factor = 1/ (1+r t ) t , use to solve for annual yield

ategy=Buy underpriced bond Z, offset future flows with other bonds W, X and Y

nnunity PV= C((1/r)-(1/r(1+r) t ))rowing Annuity=C(1/(r-g) – (1+g) t /(r-g)(1+r) t )rowing annuity when r=g = (C)(T)/(1+r)onstant Perpetuity PV = C/rrowing Perp PV=C/(r-g)elayed Perp PV= C/ r(1+r) t

Continuous annuity : 1) Solve for continuous perpetuity,2)discount PV for # years in time frame, use annual r, 1-2=valueof continuous annuity. 1+r=e r annual, continuous

Valuing share : 1)Stream of annual end yearpayments=perpetuity. Find PV. 2)Stream of mid year payments.PV=(PV end year)(1+r annual, # pay periods in year )Gordon growth model: P o=Div 1/(r-g) when g constant

Future value= C(1+r/#periods peryear) #periods to maturity FV=C(1+R) #periods to maturity

FV=C (PV simple annuity)(discount factor)

NPV=C0 + C1/(1+r 1)…= C0 + ∑Ct / (1+ r t ) t Po/EPS 1= 1/r + NPVGO/EPS 1 NPV=(INVt (ROE-r))/rG= (k)(ROE)INV=(EPS t )(k)DIVt =EPS t (1-k)

Div t = EPS t (1-k) g=(k)(ROE) P o=EPS1/r + NPVGONPVt = INVt (ROE-r) / r DIV t =EPS t - INVt

Expected Return = r = DIV 1/P o + gAnnual yield=r a,1 (1+r a,1 )=(1+r a,m /m) m = (1+R) m

r annual rate, compunded annually =r annual rate, compound other =r non-annual

Bond Price =C/(1+r 1) + C/(1+r 2)2 + FV/(1+r 2)2

Yield to maturity : Price=C(1/(1+r) + 1/(1+r) 2) + FV/(1+r)Yield to Maturity : Price=(Face value)(DF t ) wherePrice=(DF t )(Face value), DF t = 1/(1+r) t *Solving for r as one value, instead of using different r’s* Bond Price =(C)(DF 1)+C(DF 2)+FV(DF 2)Discount Factor=1/(1+r t ) t Future rate (f): (1+r 1)(1+f 2,1)=(1+r 3)3

(1+f i,t )=((1+r i,t ) t+i / (1+r t ) t )1/i *where i=# of years term lasts, t=#years i n future*Low Price to earnings ratio=”value”high=”growth” k=1-(Div 1/EPS 1)EPSt = EPS t-c(1+g EPSt )C R= r a,m / m r a, continuous = ln (1+r)(1+r)=(1+r a,m /m) m = (1+R) m To solve for continuous flow of C, PV=C/r a, continuous Solve for quarterly payments for flow C, PV=C quarter /RRa,continuous =ln(1+r a,1) e r a, continuous =(1+r a,1)PV of stream continuously compounded for “t” years= Cannual (1/r a,continuous – 1/(r a,cont. )(1+r) t )Effective annual rate=(1+r/m) m – 1 when r=annual %