Questions tagged [present-value]
The present-value tag has no usage guidance.
46
questions
0
votes
1answer
71 views
Is the $NPV$ always a decreasing function in $r$
I was able to prove that, for positive Cash Flows $f_i$ and any value of $f_0$, the $NPV$ function is decreasing in $r$, hence, for $r_m<r_p=IRR$, then $NPV(r_m)>NPV(r_p)=0$.
$$
NPV(r,f_i)=\sum_{...
0
votes
0answers
30 views
How to compute the yield to maturity on a zero-coupon 3 year bond in this case?
Suppose I have the following problem:
We have data on three bonds: a one-year zero-coupon bond (bond A), a twoyear zero-coupon bond (bond B), and a three-year bond with an annual coupon equal to 5% ...
1
vote
2answers
133 views
Exposure At Default: Calculating the present value
In this numerical example, I can't figure out with which numbers (when using the PV formula) to calculate exposure at default (EAD) as shown in the table.
The EAD is the value of the discounted future ...
0
votes
1answer
65 views
How is the present value of tax shield of constant and perpetual debt derived?
According to this site, the present value of tax shield of constant and perpetual debt is:
corporate tax rate × interest payment ÷ expectd return on debt
I understand the part about "corporate ...
3
votes
2answers
285 views
NPV of Future Investment: Two Approaches?
Suppose I expect the return on my investment to follow some upward trend: $R_t = R_0 e^{\mu t}$, where $\mu > 0$. If I wish to compute the present value of these inflows, I would have
$$
\int_o^\...
3
votes
0answers
181 views
Geometric Brownian Motion and Energy-Efficiency Investments
Suppose the payoff $X$ on an investment follows a Geometric Brownian Motion:
$$
dX/X = \mu dt + \sigma dz\ ,
$$
for $dz$ an increment of a Wiener process. I wish to compute the expected present value ...
0
votes
1answer
77 views
Which relation stands between IRR and the cumulative profits?
In the graph below you can see an irregular Cash Flow.
The graph is cumulative, on the y axes there are moneys, on the x the dates.
In the second graph the IRR (...
0
votes
0answers
40 views
Robust way to calculate credit risky PV from CDS spreads
Suppose the credit risky present value of some future cash flow at time $T$ is to be calculated, and there are observable (market standard) CDS spreads on the obligor.
Now, I think that one could ...
0
votes
4answers
178 views
Expected return rate greater than required return rate [closed]
I am a beginner to finance, today I found a question looks very simple that I am not quite sure about it.
Question: Given I am paid \$50,000 now, growing at $6\%$ per year for a total of 10 years, ...
0
votes
0answers
117 views
Future Value Mathematical Formula For Operating Lease Under U.S. Rule
Thanks in advance. I am trying to code a function to calculate the payment for an operating lease based on U.S. rule. I have spent over a week trying to figure out the formula but the output does not ...
0
votes
2answers
219 views
Campbell Shiller log linear relation
I am trying to derive the campbell shiller log linear relation, and i got stuck with something (i believe) quite simple.
Before we are using the first-order tayler expansion is where i got stuck, ...
0
votes
1answer
41 views
Is this the present value of a short position on an option?
Consider a European put option, whose price at time $0$ is $\Pi_0$.
Set:
$$\mathcal{L}_0=\Pi_0 - P(0,t_M)\Pi_{t_M}$$
where 0 < $t_M$ and $P(0, t_M)$ is the discount factor from time $0$ to time $...
0
votes
2answers
204 views
Valuing Acquisition Target Case Study - DCF and IRR?
Wondering how best to answer a case study I need to do. Case study info as follows:
Given Selling company's P&L (3 years actual, 4 years forecast) - closing date on end of year 3 - and a PPT of ...
1
vote
0answers
69 views
Should the NPV be equal to zero in liquid markets? [closed]
My question is actually very simple. I would like to motivate it by bringing the following example:
suppose we have a (conventional) bond which generates $CF_1;CF_2;...;CF_n$ cash flow (for ...
1
vote
2answers
208 views
NPV and efficient market hypothesis
If I have an opportunity of investment, let's call it investment (A), that costs $I$ in year 0 and gives me $CF_1$ in year 1, I will accept it only if $NPV>0$
$NPV = -I + \dfrac{CF_1}{1+k} > 0$
...
1
vote
1answer
43 views
PV of security with interest-dependent cash flows
I struggle with the following exercise, where the correct answer is supposed to be "no":
A riskless security with cash flow $C_1, C_2, \dots, C_n$ has a market price of $\sum_{i=1}^n C_i\,d(i)$. ...
1
vote
1answer
386 views
How would this 10s/20s steepener work
Say I'm interested in a trade that wants to execute a 10s/20s steepener
This is done via a receiver leg on the 10s and a payer leg on 20s
Look at the following example (the figures are all ...
0
votes
1answer
257 views
How does one calculate the duration of a cash flow
The question reads: A firm has liabilities as follows: £2,910 at time t = 0 and £7,501 at time t = 4 (time is measured in years). On the asset side the firm has two
payments, each for £5,000, at time ...
0
votes
1answer
97 views
Newbie question on Net Present Value with Constant Growth [closed]
Newbie here, trying wrap my head around on why this doesn't add up:
Calculating the discounted cash flow of a perpetuity paying $1000 per year, 15% discount rate and 5% growth.
If I calculate from ...
1
vote
1answer
88 views
Proof that IRR(A) < IRR(A+B) < IRR(B) ? Ie that the IRR of two cashflows together must be within the range of the IRR of the two cashflows?
The question
The IRR of two sets of cashflow is not (necessarily) the weighted average of each set of cashflows. E.g. if
...
1
vote
0answers
53 views
Valueing a Short future contract with dividens [closed]
A forward of an underlying paying a yield $q$ can be priced with the equation:
Price $= S_0 e^{(r-q)*t}$
or
Price $= (S_0-I)e^{rt}$
Where $S_0$ = Spot price, r = interest, q = dividend yield, I = ...
0
votes
1answer
109 views
Present Value versus. Future Value of an Annuity Due
To determine the present value of an annuity due, 1 is added to the discount factor of the ordinary annuity. However, to determine the future value of an annuity due, 1 is removed from the discount ...
2
votes
0answers
48 views
Calibration of stock's intrinsic value under the gordon model
Assume we have the constant growth Gordon model, for a stock paying dividend $D$,Earnings per Share $EPS$, annual growth rate $g=ROE*(1-\frac{D}{EPS})$ and discount rate $r$.
Then:
$IV=\frac{D*(1+g)}...
1
vote
1answer
4k views
MtM of FX Forward
I had a look at pnl calculation of FX forward but it didn't quite match my question.
Say $X_{t,\tau}$ is the USDJPY FX Forward Rate as seen at time $t$ for expiry $t+\tau$. So $X_{t}^{spot} := X_{t,0}...
3
votes
1answer
183 views
Rate of convergence between price and value
In my experience, there are two primary methods of alpha generation. In both cases, assume we know what price is.
Method 1: Inference on what the price/payoff will be.
Method 2: Inference on what ...
1
vote
3answers
301 views
Does the traditional NPV formula of a cashflow double count risk?
Consider a cash flow stream of a single payment (1 period away). Its net present value is typically presented as
$$
\text{NPV} = {\text{EV}(\text{Cash Flow}) \over 1 + d} \tag{1}
$$
Here $d$ is ...
-2
votes
1answer
121 views
Problems with Money Weighted Rate of Return [closed]
The market value of a small pension fund’s assets was 2.7m on 1 January 2000 and 3.1 m
on 31 December 2000. During 2000 the only cash flows were:
Bank interest and dividends totalling 125,000 ...
0
votes
1answer
103 views
Bond Fair Value
Im trying to learn bond valuations and working out problems I find online, but I come up with the wrong answer for this one.
Im buying a four year coupon bond for 963.54. The coupon is 5.172% paid ...
1
vote
1answer
298 views
Characteristics of a Discount Curve
Does the discount curve used for discounting cash flows have to be a zero coupon, annual compounding, actual by actual day basis curve? In practice, does a curve used for discounting necessarily have ...
0
votes
1answer
465 views
Question about IRR and early prepayment
Suppose I look at a 36 month loan for \$10,000 at 20%. Thus my payment per month is \$166.67. Thus my IRR should be 20% (on an annualized basis).
Now let's suppose I prepay my loan early at the end ...
1
vote
3answers
13k views
Why is PV(tax shield) calculated using cost of debt capital for discounting?
I understand that (interest payment)×(corporation tax) is the cash flow saving (assumed to go on in perpetuity) and it can be written as (debt)×(cost of debt capital)×(corporation tax). But why is it ...
-2
votes
1answer
39 views
How to come up with this present value in this question? [closed]
I'm starting to learn corporate finance on my own and have read about this question:
You sell the rights to screen a film on TV once every two years for €0.8m. The film has just been screened. You ...
-1
votes
2answers
2k views
NPV calculation of past flows
I have a theoretical question concerning NPV calculation of financial products.
I know how to calculate it when future flows have to be estimated, but I am wondering how to calculate past flows. In ...
0
votes
1answer
257 views
Is there a formula for present value of a growing annuity with yearly payment growth and monthly payments? [closed]
I have seen formulas that have cracked the future value of growing annuity where there are monthly payments and yearly growth rates.
But given a future value, is it possible to derive the present ...
5
votes
1answer
2k views
How to compute the yield on the Ultra-Bond Treasury Futures
I am trying to compute the yield on the Ultra-Bond Treasury Futures which is roughly 172.2187.
Heres the description of the contract:
U.S. Treasury bonds with remaining term to maturity of not ...
0
votes
1answer
34 views
Choice between 2 investments that cost the same but offer different interest and face value [closed]
Assume, you have a choice between two investments that both cost \$1000 each, however investment A pays \$20 a year and \$950 at the end of year 5 but investment B pays \$10 a year and \$1000 at the ...
1
vote
1answer
65 views
Cash Flow for Operating Cost, Sheldon Ross Question
In his An Elementary Introduction to Mathematical Finance, 3rd Edition book, pg. 55, Sheldon Ross has a question -
A company needs a certain type of machine for the next five years.
They ...
1
vote
1answer
781 views
How to calculate the NPV (Net present Value) in this question? [closed]
A company pays £1,200,000 to purchase a property. The company pays £30,000 at the end of each of the next six months to renovate the property. At the end of the eighth month the company sells the ...
2
votes
4answers
236 views
How to calculate interest rate in this problem?
Problem: A loan of £12,000 is issued and is repaid in instalments of £300 at the end of each month for 4
years. Calculate the effective annual rate of interest for this loan.
What I tried-
But ...
1
vote
2answers
91 views
Value of a continuous cash flow until a random time
I am trying to compute the present value of a continuous cash flow that lasts until a random time. The rate of the cash flow is denoted by $c$ and the random time is denoted by $\tau$. Then my claim ...
0
votes
1answer
59 views
Given cash flows, what is the interest rate of the following contract? [closed]
I am presented with an investment opportunity where I am given #481,000 on day 1. Thereafter, every 10 days, I am required to give back #50,000 every for 100 days (10 * 50000 = 500000).
How do I ...
2
votes
1answer
2k views
Why is my YTM incorrect? How does accrued interest play into Yield to Maturity?
I'm writing some software that includes a feature to calculate Yield to Maturity for a Bond. I'm using an HP 10bii Financial Calculator to double check the answers produced by my software. I'm running ...
0
votes
3answers
140 views
Compute the (Net) Present Value
Let's have a project where we invest 1000 at the beginning of year 1 and 1000 at the beginning of year 2. At the end of year 2 the income is 2200 and the project is closed.
Person A discounted with ...
1
vote
1answer
3k views
What is the proper discounting of PIK and non-compounding bullet loans?
This question pertains to two types of loans. Pay-in-kind (PIK) and bullet loans with quarterly payments.
1. PIK Loans
A PIK loan is a loan where periodic interest is NOT paid, but added to the ...
0
votes
2answers
158 views
Why is that maximizing stock value, under uncertainty, is a better option than maximizing profits?
I've been trying to access the papers that state that kind of problem, but most of them need payment for access and I am on a student budget.
I know that maximizing profits=maximizing stock value in ...
2
votes
2answers
3k views
CTD and bond futures
I am reading a chapter on bond futures in Fabozzi's book. It states that without CF (conversion factor) the CTD (cheapest to deliver) would be the bond with the longest maturity and highest coupon. ...
