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Firm Value
- Firm Value: Value= ∑ FCFt (1+WACC)t
a. FCFt: Free cash flow in time period t.
○ WACC: Weighted Average Cost of Capital.
does I/y on the calculator by decimal (ex 0.1) or by percentage (10%) or you just write the number 10?
just write the number 10 in the current configurarion. if the teacher asks us to change the settings this might change
when you need to put a negative number on the calculator, when do you press the negative sign? before or after the number?
before AND after ex [-][5000] [-]
how do you go from having Fv of an ordinary annuity to a due annuity? including payments
you just multiply Fv by the interest percent because everything will grow one more period
Write down the formula for fixed payments of principal and interest of a period of time.
(P)(R)(1+r)^n
/
(1+R)^n - 1
how do you calculate EFF%?
if its compunded twice in a year (semiannually, every 6 months) then you do this:
(1+APR/2)^2 -1 note that 2 is because is compounded twice in a year
Write down the PV formula. discount an amount of money in the future
Pv = FV / [1+i]^n
FV formula. no payments
PVx[1+i]^n
actual definition of an annuity
a stream of fixed identical cashflows. BUT limited period of time
like a bond
2 types of annuity
ordinary (end) and due (beg)
write down FV and Pv formulas for annuties
look at notes to confirm
actual definition of a perpetuities
equal cashflow at identical intervals that continue on forever
formula pv for a perpetuity
PV = PMT/i
pv formula for a lump sum
pv = future payment / [1+i]^n
Term
Definition
Risk (in general)
The chance of a negative deviation from an expected outcome. Measured by variability, uncertainty, or potential losses.
Stand-alone Risk
The total risk an asset has by itself, without diversification. Measured by standard deviation (σ).
Probability Distribution
A function that shows all possible outcomes and their probabilities. Wider distributions mean higher risk.
Relation Between Probability Distribution & Risk
A wider probability distribution means more uncertainty and higher risk. Assets with a high standard deviation have greater variability in returns.
which yield on bonds cannot be solved accurately algrebreically, instead we should use the approximation formula and give the accurate answer buy using the calculator
YTM
