Study Session 2 - stats

Question 1

Bank discount yield

Answer 1

Discount/face * 360/days to maturity

Question 2

Holding Period Yield (HPY)

Answer 2

Ending value/beginning value -1

Question 3

Effective annual yield (EAY)

Answer 3

(1+HPY)^(365/days to maturity) -1

Question 4

Money Market Yield (MMY)

Answer 4

HPY * 360/days to maturity

Question 5

Effective Annual Rate (EAR)

Answer 5

(1+ Stated annual rate/m)^m -1

Question 6

Effective Annual Rate (EAR) - continuous compounding

Answer 6

EAR= e^r -1

Question 7

Calculating IRR for a perpetuity

Answer 7

Enter 9999 into f01 field

Question 8

Money Weighted return

Answer 8

Applies concept of IRR to the investment portfolios. (periods must be equal in length). It is more sensitive to value invested.

Question 9

If funds are contributed to an investment portfolio just because a period of low performance will money or weighted return be lower?

Answer 9

Money weighted will be lower than time weighted

Question 10

Ordinary annuity

Answer 10

When payment is at the end of a period

Question 11

Annuity due

Answer 11

when payment is due at the beginning of a period (remember to change the calc to BGN mode)

Question 12

Annuity on the calculator

Answer 12

For a single payment we solve for PV/FV. For Annuity we solve for PMT.

Question 13

Perpetuity

Answer 13

Payments for an infinite amount of time. PV= PMT/(I/Y)

Question 14

Solving TMV if not in annual periods

Answer 14

Leave calc in annual compounding mode (P/Y=1). Enter I/Y as interest rate per period. Enter N as number of periods.

Question 15

Calculating time weighted return

Answer 15

Calculate holding period of every sub period (subperiods do not need to be of the same length).
(1+time-weighted return)^Number of years=(1+HPR1)*(1+HPR2)