Revision PPTX_BU8201_AUG 2015 - Revision PPTX  Purpose...

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Revision PPTX Purpose: Review Pace: Review Pace not pace of teaching for 1 st time Selected Slides: not exhaustive (limitation of Time). Purpose: Review/Recap and application, not derivation and explanation. Emphasis more on calculations, less on those based on theory, memory of facts type, accounting definitions and ratios. Comment on common mistakes, some memory pointers during lecture. Not an indication of importance or lack of importance of certain topics. 1
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Premiums added to r* for different types of DEBT IP MRP DRP LP S-T Treasury L-T Treasury S-T Corporate Bond L-T Corporate Bond 1-2 r = r* + IP + MRP + DRP + LP
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PEH: (1 + R L ) L = (1 + R S ) S (1+ S R L ) (L-S) (1 + R L ) L = (1 + R S ) S (1+ S R L ) (L-S) Let S = 3, L = 7, (L-S) = 7-3 = 4 Suppose R S = R 3 = 5.6% per annum (p.a.), R L = R 7 =8.2% p.a. (1 + 0.082) 7 = (1 + 0.056) 3 (1+ 3 R 7 ) 4 3 R 7 = 0.1019 = 10.19% The 4-year interest rate starting at Yr-3 and ending at Yr-7 is expected to be 10.19% 0 S L R S S R L . R L 1-3
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