FINE 2000 Study Guide - Midterm Guide: Risk-Free Interest Rate, Risk Premium, Yield Curve

60 views3 pages
16 Jul 2016
Department
Course

Document Summary

Must discount the expected future cash flows at an appropriate discount rate. Price of bond = pv of coupon payments + pv of principle r = discount rate; required rate of return, ytm, cost of capital. Discount rate is made up of risk free rate + risk premium. Risk free rate is return on us gov bond b/c that security is considered most safe. Payment at the maturity is called the face value or par value: assume coupon is unless otherwise stated. Annualized rate of return = (annualized coupon income + price change) / investment. Ann coupon income = (1 + period coupon rate)^# of periods. After tax interest income = income(1 -tax rate) After tax capital income = cap gain -cap gain/2(tax rate) Look at sensitivity of price changes for bond yields, as maturity increases. Longer maturity has more volatile price changes for a given change in yield.

Get access

Grade+20% off
$8 USD/m$10 USD/m
Billed $96 USD annually
Grade+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
40 Verified Answers
Win an iPhone 13
Get a subscription and follow @oneclass.store on TikTok for a chance to win an iPhone 13. Learn more

Related Documents

Related Questions