Mid 1 - Equation Sheet-1

Mid 1 - Equation Sheet-1 - Improved Approx of ∆P bp=(mod...

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FIN 423 – Equation Sheet Future Value - P n = P 0 (1+ r ) n Present Value - Future Value of an Ordinary Annuity - P n = Present Value of an Ordinary Annuity - Pricing of a Bond - Pricing of a Bond when next coupon is in less than 6-month - Macaulay duration = Modified Duration = Modified Duration = - + + - + + Cy21 11 yn n1000 Cy1 yn 1P ∆P: +bp= - (mod. duration)(∆% in decimal)(current price)
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-bp= + (mod. duration)(∆% in decimal)(current price)
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Unformatted text preview: Improved Approx. of ∆P: +bp= - (mod. Duration)(∆% in decimal) + 1/2(convexity)(∆% in decimal)²-bp= + (mod. Duration)(∆% in decimal) + 1/2(convexity)(∆% in decimal)² Floater Price (example: 10 yr. 7.5% coupon semi-annual if split 50/50) 0.5(reference rate + 1%) + 0.5(14% - reference rate) = 7.5%...
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Mid 1 - Equation Sheet-1 - Improved Approx of ∆P bp=(mod...

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