MAF101 Study Guide - Final Guide: Fisher Hypothesis, Royal Institute Of Technology, Effective Interest Rate
Document Summary
Section 1 time value of money (valuation of debt and equity) 1. 1. 1 simple interest (short-term debt valuation pv and implied yield) 1. 1. 2 compound interest (long-term debt valuation pv of face value) 1 + (1 +) = (1 +) . 1. 2. 4 pv of perpetuity (preferred share) and growing perpetuity (ordinary share) First payment made at time j (j 1) First cash flow paid at time j (j 1), r > g. 1. 2. 2 ordinary annuity (long-term debt valuation pv of coupon stream) 1. 2 cash flow streams (multiple payments) with compound interest. 1. 2. 1 multiple cash flows (equity valuation pv of uneven dividend stream) R = realized return; e(r) = expected return; pi = probability of ith possible return; = standard deviation; Covx,y = covariance between asset x and asset y; p = portfolio; k = kth asset in the portfolio; n = total number of assets in the portfolio; w = weight of individual asset in the portfolio.