Chapter 5 - Risk and Returns Flashcards
Real Rate of Interest
(1+nominal/1+inflation)-1
Periodic Yeild
(Current price-nominal)/Current Price
Annualised Yeild
Periodic Yield/(365/period to repayment)
Works out what you would earn over year. Works with bills and paper
Simple Yeild
Coupon/price
Real Yeild
Nominal-inflation
Index linked adjustment
Coupon=Coupon*(New RPI/Old RPI)
Future value
Present value * (1+R)n
FV=PV*1+Rn
PV=FV/1+Rn
1+Rn=FV/PV
Annuity (simple)
(Cashflow/1+R) + (Cashflow/1+R2) + (Cashflow/1+R3)
Annuity formula
Present Value=Cashflow/0.R*(1-(1/(1+Rn)))
Annuity formula Plus (bond value)
Present Value=Cashflow/0.R*(1-(1/(1+Rn)))+(CAP/1+Rn)
Irredeemables
PV=Coupon/(1+r)
Flat yield/Income yield/Simple yield
FY=(Coupon/Market Price)*100
GRY (Japanese Method)
FY+((Profit or Loss at redemption/remaining years)/Market Price)
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.
GEY
Gross equivalent yield=(Net redemption yield/(0.8 or 0.6 or 0.55))*100