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QM 1

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lightenning's version from 2017-02-19 00:34

Section

Question Answer
Real Risk-free RateSingle period return on a risk-free asset assuming zero inflation
Nominal Risk-free rateReal risk-free rate+inflation
AnnuityFinal set of level sequential Cash flows
Ordinary Annuityannuity with Cash flows happening at the end of the Period
Perpetuity FormulaPV= PMT / (I/Y)
Continuous Compounding FV FormulaFVn = PV e ^ (rs x n )
EAR formulaEAR = [ ( 1 + Periodic interest rate ) ^ N ] - 1
Loan AmortizationProcess of retiring loan obligations thru predetermined equal monthly payments which include both principal repayment and interest ( based on the outstanding interest due based on the value of the loan at the beginning of that period )
NPVPV of all expected inflows from the investment minus the PV of all expected outflows.
IRRDiscount rate that equates the project's NPV to zero
IRR > required rate of returnAccept
IRR < Required rate of returnDeny
Mutually exclusive ProjectWhen only one of many options can be chosen ( NPV and IRR analysis )
Problems with IRRMultiple IRR or no IRR
Holding Period Yield (HPY)[(sum of returns - P0)/P0 ] x 100
Money-Weighted rate of returnInternal rate of return of an investment.
Time-weighted Rate of returnCompounded rate of growth of an investment over a stated measurement period
Time weighted rate of return formula(1 + time weighted rate of return)^2 = (1+HPY1)((1+HPY2)
Bank Discount YieldBDY = ( D/F ) x (360/t) where [D = Face value - Price] and t is remaining days until maturity
Treasury HPY HPY = P1 + D1 - P0 / P0 where P1 is face value and P0 is current value
Effective Annual Yield (EAY)annualized return measure that accounts for compounding over 365-day period.
EAY formula EAY = [( 1+HPY ) ^ (365/t)] -1 where t is number of days remaining
HPY formula based on EAYHPY = ([1+EAY)^ t/365 ] -1
Money Market Yieldholding period yield annualized on a 360-day basis
Formula for Rmmrmm = (360 x r BD ) / (360 - ( t x r BD ) ) = HPY x (360 /t )
Bond Equivalent YieldSemiannual discount rate multiplied by two
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