Pv of a perpetuity - Study guides, Class notes & Summaries

Default Risk - Risk that a borrower will not make promised payments Liquidity Risk - Risk of recieving less than fair value for an investment if it must be sold for cash quickly Required Interest Rate on A Security - = Nominal Interest Rate + Default Risk Premium + Liquidity Premium + Maturity Risk Premium Real Risk Free Rate / Nominal Risk Free Rate - - Single period interest rate for a completely riskfree security with no inflation added - Nominal = Real Risk Free Rate + Expected Infla...

FINC 3331 Chapter 5 – 8 Final Exam Prep Questions Correctly Answered. Annuity pays $2,500 at end of year for 3 years. You could earn 5.5% on your money in other investments that have equal risk. What is the most you should pay for the annuity?? - CORRECT ANSWER Payment = $2,500 Interest/year = 5.5% (or .055) N (years) = 3 (2500/(1+0.055)) + (2500/ (1+0.055)^2) + (2500/(1+0.055)^3) = $6,744.83 What is present value of a perpetuity that pays $250 per year if the appropriate inte...

Discounted Cash Flow analysis intrinsic method of valuation Based on the present value of the company's future cash flows Concept is based on the going concern principle in accounting that firms are expected to operate into perpetuity Firm total enterprise value = PV of FCFS + PV of terminal value, both discounted using WACC PV of fcfs, discounted using WACC + PV of Terminal Value, discounted using WACC = Implied Total Enterprise Value today FOUR major steps in performing a DCF analysis: 1...

what is value what people are willing to pay for (what the buyer pays) who said, "Value is what people are willing to pay for" John Naisbitt Brainpower Read More Previous Play Next Rewind 10 seconds Move forward 10 seconds Unmute 0:08 / 0:15 Full screen 2 primary types of valuation 1. relative valuation 2. intrinsic valuation relative valuation refers to what methods that compare the price of a company to the market value of similar assets intrins...

Price change based on convexity correct answer - -duration(change in yield)+1/2(convexity)(change in yield)^2 Effective Duration correct answer - Required if a bond has embedded options: [(v-)-(v+)]/[2V0(change in curve)] Modified Duration correct answer - [(v-)-(v+)]/[2V0(change in yield)] Future Value correct answer - PV(1+(I/Y)^N) PV correct answer - FV/(1+r)^n PV of perpetuity correct answer - PMT / discount rate Approximate percentage price change of a bond correct answer ...

What are two benefits of making a compacted DCF model 1. Helps us learn the main features of a DCF model 2. Helps in a situation where we need a quick analysis What are two important dates in a DCF 1. Timing of the cashflows 2. Date of Valuation The time value of money is also called the _______ The time quantity of money What is the simplified formula to discount the cashflows Unlevered Free Cash Flow (UFCF)/ Weighted Average Cost of Capital (WACC) What are the three types of valuation tech...

Price change based on convexity correct answer: -duration(change in yield)+1/2(convexity)(change in yield)^2 Effective Duration correct answer: Required if a bond has embedded options: [(v-)-(v+)]/[2V0(change in curve)] Modified Duration correct answer: [(v-)-(v+)]/[2V0(change in yield)] Future Value correct answer: PV(1+(I/Y)^N) PV correct answer: FV/(1+r)^n PV of perpetuity correct answer: PMT / discount rate Approximate percentage price change of a bond correct answer:...

CFA Level 1 Formulas Price change based on convexity - ANSWER--duration(change in yield)+1/2(convexity)(change in yield)^2 Effective Duration - ANSWER-Required if a bond has embedded options: [(v-)-(v+)]/[2V0(change in curve)] Modified Duration - ANSWER-[(v-)-(v+)]/[2V0(change in yield)] Future Value - ANSWER-PV(1+(I/Y)^N) PV - ANSWER-FV/(1+r)^n PV of perpetuity - ANSWER-PMT / discount rate Approximate percentage price change of a bond - ANSWER-(-)(modified duration)(ΔYTM) ...

nominal risk free rate equals... correct answer: real risk free rate + expected inflation required interest rate on a security correct answer: nominal risk free rate + default risk premium + liquidity premium + maturity risk premium EAR or APY correct answer: (1+periodic rate)^m - 1 always higher than annual percentage rates (not compounded) ordinary annuity correct answer: cash flows that occur at the end of each compounding period annuity due correct answer: payments or rec...

FIN 3320 Exam 2 | Questions with complete solutions Suppose United Bank offers to lend you $10,000 for one year at a nominal annual rate of 8.00%, but you must make interest payments at the end of each quarter and then pay off the $10,000 principal amount at the end of the year. What is the effective annual rate on the loan? a 8.24% b 8.45% c 8.66% d 8.88% e 9.10% You sold a car and accepted a note with the following cash flow stream as your payment. The effective price you received for the ca...