This preview shows pages 1–2. Sign up to view the full content.
This preview has intentionally blurred sections. Sign up to view the full version.
View Full Document
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)...
View
Full
Document
 Winter '08
 spurlin
 Interest

Click to edit the document details