FINS1613
Lecture 2:
Financial maths
Annuity: Level stream of cash flows for a fixed time.
Ordinary annuity: cash flows occur at end of each time period
Annuity due: cash flows occur at the beginning of each time period
Deferred annuity: the first cash flo
CVEN2002/CVEN2702
Engineering Computations - Statistics
Statistics Laboratory Class Week 1 : Introductory Matlab Tutorial
In your statistics course, there are scheduled computer tutorials in which you explore the use of
Matlab in statistics. Matlab is ava
Lecture 10
Option strategies
Introduction
At the end of this lecture, you should
understand:
option concepts and various terminologies
various option strategies and their payoffs
put-call parity, and based on the parity derive the
value of puts or cal
THE UNIVERSITY OF NEW SOUTH WALES
SCHOOL OF BANKING AND FINANCE
FINS3635 OPTIONS, FUTURES AND RISK-MANAGEMENT
SESSION 1, 2013
ASSIGNMENT - STRUCTURED PRODUCTS CASE STUDY
VERSION 4: EQUITY PERFORMANCE BOND
Instructions
Project Group: You must complete thi
Expectations theory (ET)
The Expectations theory asserts that forward rates = market expectations of future IRs
i.e.
If we restrict the forecast to IRs on bonds with 1 year to maturity (i.e. n=1) and drop the n, the
notation can be simplified to f(t) = E
Assumptions of CAPM
1. Investors are Price takers
- No investor is large enough relative to the market to influence () equilibrium prices
by their individual trades
- Everyone should pay/receive the same price for an asset everyone earns an equal
return f
The risk-free asset and the capital allocation line
Main article: Capital allocation line
The risk-free asset is the (hypothetical) asset which pays a risk-free rate. In practice, short-term government securities (such as US
treasury bills) are used as a
Testing the market for Weak Form Efficiency
Evidence that supports the weak form
Ball 1978: Trading rules that result from technical analysis is not profitable
No serial correlation between daily returns over short intervals
Chapter 1 Entrepreneurship Fundamentals Successful E's recognize and develop a viable business opportunity, have confidence in the market potential for their new products and services, and are committed to running the race. They keep success in sight even
CHAPTER 10
FROM EARNINGS TO CASH FLOWS
Problem 1
a. Effective tax rate = 0.25! 12.5/50
After-tax operating income =
37.5
1
EBIT (1-t)
$41.25
Reinvestment
$16.50
FCFF
$24.75
Terminal value
Present Value
$22.30
Firm Value
$449.49
b. Marginal tax rate rate =
Solutions to Investment Valuation
34
CHAPTER 9
MEASURING EARNINGS
Problem 1
Year
Operating Lease
Present Value at 7%
Expense
1
90
84.11215
2
90
78.60949
3
85
69.38532
4
80
61.03162
5
80
57.03889
6-10
75
219.2538
Sum of present values
569.4313
The debt val
CHAPTER 8
ESTIMATING RISK PARAMETERS AND COSTS OF FINANCING
Problem 1
We use the CAPM:
The Expected Return on the stock = 0.058 + 0.95(0.0876) = 0.1412 = 14.12%.
Since the investor is a short-term investor, we use the T-bill rate, and the arithmetic mean.
CHAPTER 7
RISKLESS RATES AND RISK PREMIUMS
Problem 1
I would use the U.S. treasury bond rate. There is country risk but it is best shown as part
of the risk premium.
Problem 2
Because it exposes you to reinvestment risk the rate will be different in 6 mon
CHAPTER 6
MARKET EFFICIENCY DEFINITION, TESTS AND EVIDENCE
Problem 1
(a) Resources are allocated among firms efficiently (i.e. put to best use)
(f) No group of investors will do better than the market consistently after adjusting for risk
and transactions
CHAPTER 5
OPTION PRICING THEORY AND MODELS
Problem 1
A. The values of the option parameters are as follows:
S = $83
K = $85
t = 0.25
r = 3.80%
Variance = 0.09
Value of call = $4.42
B. To replicate this call, you would have to:
Buy 0.4919 Shares of Stock (
CHAPTER 3
UNDERSTANDING FINANCIAL STATEMENTS
Problem 1
a. Marketable securities are valued at book or market, whichever is lower. Hence
marketable securities are probably assessed at close to market value. Near-cash must
also be close to market value. Cas
CHAPTER 2- SOLUTIONS INTRODUCTION TO VALUATION
Problem 1 A. False. The reverse is generally true. B. True. The value of an asset is an increasing function of its cash flows. C. True. The value of an asset is an increasing function of its life. D. False. G
CHAPTER 1 - SOLUTIONS INTRODUCTION TO VALUATION
Problem 1 e. All of the above Problem 2 d. Value is determined by investor perceptions, but it is also determined by the underlying earnings and cash flows. Perceptions must be based upon reality. Problem 3