Experience Flashcards
What is the worth of a perpetuity right before the payment
The payment plus the payment divided by the interest rate
What is the worth of a growing perpetuity right after a payment
One plus the growth rate times the cashflow divided by the interest minus the growth
How do you transform an annuity to a growing annuity formula
You subtract the growth rate from the interest rate in the beginning and add it to the one in the division top. Than you move the exponent from the lower divider to exponentiate the entire division
When do ear and apr take place
Always annually
What is the formula for the value of repeated savings
C/r) * ((1+r)^n -1) = fv of repeated savings
What is the monthly discount rate
APR/12
Why does the yield curve invert when we come out of a recession
It does not, when people have hope for the close future they buy more short term bonds making the yield curve have its normal shape where longer maturity is compensated.
What is ytm in bonds
Yield to maturity including both coupons and face value
When is a bond par discount or premium
Discount if ytm is higher than coupon rate, premium if ytm is lower than coupon and par if it is tye same
How can you tell if CAPM holds if you know the sharp ratio of the market and another portfolio
The market portfolio should have the highest sharp ratio
How do yo calculate beta if you know the standard deviation and correlation of the market and a portfolio
Cor*sd/sdm = b
How should you calculate the weight of a short position
Negative money in short divided by the worth of the other assets subtracted by the short worth
What is the standard deviation aka volatility of a portfolio of an asset and a risk free asset
The weight times the standard deviation of the asset
What is the expected return if a portfolio if one asset and a risk free asset
rf+x*(ri-rf) x being the weight of the non risk free asset
How do you calculate the sharp ratio
Return rate subtracted by the risk free rate divided by the standard deviation of the asset
How do you calculate correlation using the sharp ratio
Correlation equals the sharp ratio divided by the larger sharp ratio
How do you calculate price when immediate dividends are known and are then expected to grow at a constant rate
You calculate the present value of the known dividends and then add the present value of a growing perpetuity that begins a period after the last known dividend
How do you calculate compound annual growth rate
You divide the value in the future by the value at present and exponentiate it all by one divided by the time periods and lastly subtract by one
What is capm
ri=rf+b(rm-rf)
What is the market premium
Rm -rf
What is the portfolio standard deviation if there are two assets in a portfolio
(x^2sdx^2 + y^2sdy + 2xy*cov)^1/2
Cov = sdxsdycor
If a graph of portfolio ratios looks like a sideways mountain where is it most efficient
At the side summit
How do you calculate ytm if you know price maturity and the coupon payment
Trial and error. You type different ytms in the annuity plus present face value formula untill the result is your price
What makes a bond more sensitive to changes in ytm
If the maturity is long or the coupons are small
