cheat sheet
Accrued Interest = x Nominal Return = Real Return = – 1 Real rate of return Compounding = rnominal-inflation rate
Current yield = The invoice price is the reported price plus accrued interest The ask price is 101.125 percent of par, so the invoice price is: $1,011.25 + (1/2 $50) = $1,036.25
Effective annual rate on a three-month T-bill: Optimal capital allocation: Y= E(rp)- Rf / A(std)^2portfilio
– 1 = (1.02412)4 – 1 = 0.1000 = 10%
Effective annual interest rate on coupon bond paying 5% semiannually:
(1 + 0.05)2 – 1 = 0.1025 = 10.25%
The effective annual yield on the semiannual coupon bonds is (1.04)2 -1 = 8.16%. after tax yield = (taxable yield)*(1-tax rate)
Holding period return =
Price of a Zero-Coupon Bond =
Bond Equivalent YTM = Semi-annual YTM 2
The bond is selling at par value. Its yield to maturity equals the coupon rate, 10%. If the first-year coupon is reinvested at an interest rate of r percent, then total proceeds at the end of the second year will be: [100 (1 + r) + 1100]. Therefore, realized compound yield to maturity will be a function of r as given in the following table: r Total proceeds
Realized YTM = = 1
8%
$1,208 – 1 = 0.0991 = 9.91%
10%
$1,210 – 1 = 0.1000 = 10.00%
12%
$1,212 – 1 = 0.1009 = 10.09%
HPR =
Time-weighted average returns are based on year-by-year rates of return. Portfolio= (1-y)(risk free) + (y)(equity index)
Year
Return = [(Capital gains + Dividend)/Price]
2010-2011
(110 – 100 + 4)/100 = 0.14 or 14.00%
2011-2012
(90 – 110 + 4)/110 = –0.1455 or –14.55%
2012-2013
(95 – 90 + 4)/90 = 0.10 or 10.00%
Arithmetic mean: [0.14 + (–0.1455) + 0.10]/3 = 0.0315 or 3.15%
Geometric mean: – 1
= 0.0233 or 2.33%
Given that A = 4 and the projected standard deviation of the market return = 20%, we can use the below equation to solve for the expected market risk premium:
A = 4 = =
E(rM) – rf = AM2 = 4 (0.20) = 0.16 or 16%
The expected cash flow is: (0.5 $50,000) + (0.5
Current yield = The invoice price is the reported price plus accrued interest The ask price is 101.125 percent of par, so the invoice price is: $1,011.25 + (1/2 $50) = $1,036.25
Effective annual rate on a three-month T-bill: Optimal capital allocation: Y= E(rp)- Rf / A(std)^2portfilio
– 1 = (1.02412)4 – 1 = 0.1000 = 10%
Effective annual interest rate on coupon bond paying 5% semiannually:
(1 + 0.05)2 – 1 = 0.1025 = 10.25%
The effective annual yield on the semiannual coupon bonds is (1.04)2 -1 = 8.16%. after tax yield = (taxable yield)*(1-tax rate)
Holding period return =
Price of a Zero-Coupon Bond =
Bond Equivalent YTM = Semi-annual YTM 2
The bond is selling at par value. Its yield to maturity equals the coupon rate, 10%. If the first-year coupon is reinvested at an interest rate of r percent, then total proceeds at the end of the second year will be: [100 (1 + r) + 1100]. Therefore, realized compound yield to maturity will be a function of r as given in the following table: r Total proceeds
Realized YTM = = 1
8%
$1,208 – 1 = 0.0991 = 9.91%
10%
$1,210 – 1 = 0.1000 = 10.00%
12%
$1,212 – 1 = 0.1009 = 10.09%
HPR =
Time-weighted average returns are based on year-by-year rates of return. Portfolio= (1-y)(risk free) + (y)(equity index)
Year
Return = [(Capital gains + Dividend)/Price]
2010-2011
(110 – 100 + 4)/100 = 0.14 or 14.00%
2011-2012
(90 – 110 + 4)/110 = –0.1455 or –14.55%
2012-2013
(95 – 90 + 4)/90 = 0.10 or 10.00%
Arithmetic mean: [0.14 + (–0.1455) + 0.10]/3 = 0.0315 or 3.15%
Geometric mean: – 1
= 0.0233 or 2.33%
Given that A = 4 and the projected standard deviation of the market return = 20%, we can use the below equation to solve for the expected market risk premium:
A = 4 = =
E(rM) – rf = AM2 = 4 (0.20) = 0.16 or 16%
The expected cash flow is: (0.5 $50,000) + (0.5