Interest rate risk= up when years up, coupon rate down

Simple annuity: PV=C((1/r)-(1/r(1+r)^t)

Continuous compounding: rannual=ln(1+rcontinuous)
Annual yield =((1+ R/# periods per year)
# of periods year
) - 1
Non-annual payment amount:(1+R)
#payments peryear
= (1+r)
Solve for R, then simple annuity using R, solve for C
Payoff remainder of loan= PV of remaining payments
Valuing Share with non-annual dividend payment: Find PV of
each payment, Po= PV(1+r)
time units remaining in year
+ PV(1+r)
time units

Discount Factor= 1/ (1+rt)
t
, use to solve for annual yield


Strategy=Buy underpriced bond Z, offset future flows with other bonds W, X and Y
Annunity PV= C((1/r)-(1/r(1+r)
t
))
Growing Annuity=C(1/(r-g) (1+g)
t
/(r-g)(1+r)
t
)
Growing annuity when r=g = (C)(T)/(1+r)
Constant Perpetuity PV = C/r
Growing Perp PV=C/(r-g)
Delayed 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=value
of continuous annuity. 1+r=e
r annual, continuous
Valuing share: 1)Stream of annual end year
payments=perpetuity. Find PV. 2)Stream of mid year payments.
PV=(PV end year)(1+rannual, # pay periods in year)
Gordon growth model: Po=Div1/(r-g) when g constant


Future value= C(1+r/#periods per
year)
#periods to maturity

FV=C(1+R)
#periods to maturity
FV=C (PV simple annuity)(discount factor)

NPV=C0 + C1/(1+r1)= C0 + Ct / (1+ rt)
t

Po/EPS1= 1/r + NPVGO/EPS1
NPV=(INVt(ROE-r))/r
G= (k)(ROE)
INV=(EPSt)(k)
DIVt=EPSt(1-k)















































Divt= EPSt(1-k) g=(k)(ROE) Po=EPS1/r + NPVGO
NPVt= INVt(ROE-r) / r DIVt=EPSt - INVt
Expected Return= r = DIV1/Po + g
Annual yield=ra,1 (1+ra,1)=(1+ra,m/m)
m
= (1+R)
m

rannual rate, compunded annually=rannual rate, compound other=rnon-annual
Bond Price=C/(1+r1) + C/(1+r2)
2
+ FV/(1+r2)
2
Yield to maturity: Price=C(1/(1+r) + 1/(1+r)
2
) + FV/(1+r)
2
Yield to Maturity: Price=(Face value)(DFt) where
Price=(DFt)(Face value), DFt= 1/(1+r)
t

*Solving for r as one value, instead of using different rs*
Bond Price=(C)(DF1)+C(DF2)+FV(DF2)
Discount Factor=1/(1+rt)
t

Future rate (f): (1+r1)(1+f2,1)=(1+r3)
3
(1+fi,t)=((1+ri,t)
t+i
/ (1+rt)
t
)
1/i

*where i=# of years term lasts, t=#years in future*
Low Price to earnings ratio=valuehigh=growth
k=1-(Div1/EPS1)
EPSt= EPSt-c(1+gEPSt)
C

R= ra,m / m ra, continuous= ln (1+r)
(1+r)=(1+ra,m/m)
m
= (1+R)
m

To solve for continuous flow of C, PV=C/ra, continuous
Solve for quarterly payments for flow C, PV=Cquarter/R
Ra,continuous=ln(1+ra,1) e
r a, continuous
=(1+ra,1)
PV of stream continuously compounded for t years=
Cannual(1/ra,continuous 1/(ra,cont.)(1+r)
t
)
Effective annual rate=(1+r/m)
m
1 when r=annual %