£7 . I
L I ' Claw 3: CorperateFiﬂaﬂce
I andvajuation ' ‘ '
_ _ We Can use the d'ividehd diSco'mt modeHo'price' an '
annuity for T years with growth rate Q and perpetuity ' q
(with a growth rate. of. 9/2 thereafter: " . ' ' ' ‘
Do(l+g) 1.40%)?- 1
CFV, Mock Exam (3 hours, use 1 page formula sheet)
1) a) Compute the equivalent annual cost of the following two projects:
A: An air—conditioning system that costs $1M today and $50K per year for 15 yeTars.
B: An air-conditioning system that costs $700K t
Fixed Income Risk
Interest rate risk
rate and price sensitivity Summary
Interest Rate Sensitivity
Values of fixed income securities change as
economic conditions change.
Even though bond prices are not per
Lecture-3: Spot Rate, Forward Rate and Discount Function
1. Equity and Fixed Income, Study Session 14- Fixed Income Valuation Concepts
(CFA Level 2)
Interest Rate Conventions
Suppose we borrow one unit of currency (that
is, the face valu
Fixed Income Securities (Problem Set-2)
Problem Set 2: Duration, Convexity, Immunization
1) The 05-year zero rate is 10% and the 1 -year zero rate is 12%.
a) What is the price of
(i) $1 par of a 0 .5-year zero?
(ii) $1 par of a 1-year zero?
Measures of Price
This chapter reviews the factors that cause bond prices to be volatile. The
Macaulay measure of duration and modified duration are described. This latter measure captures the exposure of a bond to interest rate rmoves of
The yield: common misconceptions
0 from the previous section, it should have become clear that in some circumstances,
the yield to maturity can be a misleading measure for coupon paying bonds
0 however, since the cash ﬂows for most bonds look similar (ﬁxe