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Unformatted text preview: YTM< CR = price > par (premium) YTM = CR price = par (par) Discounted Cash Flows Evaluation Valuing level cash flows: Annuity and Perpetuities Ordinary annuity multiple, identical cash flows occurring at the end of each period for a fixed number of periods Annuity PV = C[(1-(1/(1+r)^t)/ r] Ex. Periodic interest rates: r = APR/N APR= Annual Percentage Rate, N= number of periods Ex. - Trial and Error requires you to choose a discount rate, find the PV, and compare to the actual PV and compare to the actual PV.- If the compounded PV is too high, then choose a higher discount rate and repeat process. If compounded PV is too low then choose a lower discount rate and repeat. Ex. Future values of Annuities: FV = C[(1+r)^t 1]/ r Ex. Note on Annuities Due:- annuity due 1 st payment occurs at the beginning of the period instead of at the end.- Annuity due value ordinary annuity due value times (1+r)...
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- Winter '08