Shortcuts in calculating PV
Perpetuities and Annuities
Growing Perpetuities and Annuities
Compound Interest & Present Values
PV DF C1
r1 is the opportunity cost of capital when investing
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FM 2555A Fall 2016 Assignment #3 Marking Scheme
N.B.: This sheet should be attached as a cover page of your Assignment 3 paper or
risk a deduction of 2 pts.
Assignment Question #1 _/10
PV = C
= C Art
r (1 + r )
PV = FVt
(1 + r )
C 1+ g
r g 1 + r
FVt = PV (1 + r )
Income1 + P1 P0
NPV = C 0 +
1 + r (1 + r ) 2
(1 + r ) t
Div H + PH
Assignment No. 3
Due Date: 12:30, 01 December 2016
NOTE: Only solutions to 5 problems marked with (see pages 7-8) are required for
submission. The other problems are practice exercises.
GUIDELINES ON SUBMITTING ASSIGNMENTS
Bid price The prices at which investors are willing to buy shares.
Ask price The prices at which current shareowners are willing to sell their shares.
Bid-ask spread The difference between the bid price and the ask price.
Market order An
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:32 \ Exhibit A: Price on November I; 2014 of U.S. Treasury $15000 principal strips With maturity
dates 1-20 years hence.
L l Implied 1 Year
' Price of $1,000 Implied "X"
PV = discount factor C1 =
PV = discount factor Ct =
rt is the discount rate, hurdle rate of opportunity cost of
Discounted Cash Flow(DCF)
(1 + r