Chapter 5 - Risk and Returns Flashcards Preview

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Flashcards in Chapter 5 - Risk and Returns Deck (19)
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1

Real Rate of Interest

(1+nominal/1+inflation)-1

2

Periodic Yeild

(Current price-nominal)/Current Price

3

Annualised Yeild

Periodic Yield/(365/period to repayment)

Works out what you would earn over year. Works with bills and paper

4

Simple Yeild

Coupon/price

5

Real Yeild

Nominal-inflation

6

Index linked adjustment

Coupon=Coupon*(New RPI/Old RPI)

7

Future value

Present value * (1+R)n

FV=PV*1+Rn
PV=FV/1+Rn
1+Rn=FV/PV

8

Annuity (simple)

(Cashflow/1+R) + (Cashflow/1+R2) + (Cashflow/1+R3)

9

Annuity formula

Present Value=Cashflow/0.R*(1-(1/(1+Rn)))

10

Annuity formula Plus (bond value)

Present Value=Cashflow/0.R*(1-(1/(1+Rn)))+(CAP/1+Rn)

11

Irredeemables

PV=Coupon/(1+r)

12

Flat yield/Income yield/Simple yield

FY=(Coupon/Market Price)*100

13

GRY (Japanese Method)

FY+((Profit or Loss at redemption/remaining years)/Market Price)

14

Interpolation

Annuity formula plus (for a discount value higher and lower than the Japanese method approximates). Then calculate the spread between the two.

(Ans 1/spread)*percentage between spreads + discount.

15

GEY

Gross equivalent yield=(Net redemption yield/(0.8 or 0.6 or 0.55))*100

16

Geometric Mean

(1+r*1+r*1+r)-1 (Used to find CdV Performance)

17

Macaulay Duration

(Present Value of Cash flow * time to cash flow)/Bonds price

Basically calculate the bonds price using annuity plus, the go pack an multiply each cash flow by the years to maturity and add them all up. Divide by bonds price.

Where present value of flows = Coupons*1+Rn's
So 10/1.= 9.26 * 1 year = 9.26

18

Modified Duration

Macaulay Duration/1+R

19

Bid-to-Cover Ratio

Bids received/Bids accepted