# FNCE MIDTERM 2 CHEAT SHEET - FNCE MIDTERM 2 CHEAT SHEET...

• Notes
• 2
• 100% (2) 2 out of 2 people found this document helpful

This preview shows page 1 - 2 out of 2 pages.

FNCE MIDTERM 2 CHEAT SHEETInterest Rate and Bonds – CH 8ForumulasYield to Maturity = Current Yield + Appreciation to Maturity R = c*Par/P + (Par-P)/P, c = coupon rate^^ C*Par = interest receivedGrowth Rate in Div = Expected %age capital gain or loss on stockPrice of bond = PV of par value + PV interest payment Cap Gains Yield = (New Price – Old Price)/Old Price Holding Period Yield: Find finding yield after selling a bond prematurelyHYP: Purchased Price = Original CouponPVIFA(r%,x years held) + CurrentPrice PVIF (r%, x yrs held) r% = HYP yieldAPR = m[(1+EAR)^(1/m)-1] m = # times compounded each yr.Spot Rate = yield to maturity of a zero coupon bond PVIF = 1/(1+r)tClean Price = Dirty Price – Accrued Interest Accrued Interest = Coupon Pmnt for period x (Fraction of Period elapsed since payment)Current Yield = Coupon Amnt/Price of BondP = P = YTM = y = here is average of spot ratesF2 = Expectations Hypothesis = f2 = E(1r2) Liquidity Hypothesis = f2> or < E(1r2). Buy a two year zero coupon bond or two one year zero coupon bonds. Under Expectation, those are equal when f2 = r2. Liquidity says they will only be equal when spot rate > forward rate because of risk. OR invest in 1 year bond or two year bond but sell after one year. Then forward has to be greater than the spot spot rate r2 to make them equal because of risk.1r2 = return on a bond issued one year from now maturing in two yearsEAR = [1+(APR/m)]m-1 EAR = eq-q - continuous compounding1+EAY = (1+APR/n)n(n = number of n-terly rate)FV = FV = P=C/r - Simplified PerpetuityP=C/(r-g) - Growing PerpetuityANN= P1-P2= 1 + real rate = PANN-ADV= ATR(1+r) –Annuity in AdvanceFVANN= NotesIf rates fall (YTM<coupon rate) bond price > P so is PremiumIf rates rise (YTM > coupon rate) bond price < P so is DiscountDirty Price is Invoice PriceF2 = rate you lock in for the second year when you buy a two year bond. One year rate one year from now implicit in the two year spot rate ie forward rateNOTE! When finding r1 and r2’s, default time frame is 1 yr. so if rates are 6 month rates, P = CF1/(1+r1)^.5+CF2/(1+r2)APR compounded annually = EAYAPR = annual percentage rate, EAY = Effective Annual Yield
• • • 