# Questions tagged [present-value]

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### PV different from Dirty Price in QuantLib

As far as I understand, dirty price is the sum of clean price and accrued amount and should be equal to the Present Value (PV) of a bond at a certain yield rate. However, I can't replicate this ...
62 views

### Why are finance costs excluded in capital budgeting? [closed]

I am having trouble understanding why finance costs are excluded while calculating cash flows of a project. My teacher says that the discounting at the required rate already incorporates the effect of ...
72 views

### Understanding Hamilton's formula for present value [closed]

I am a mathematician with almost no knowledge in economy and econometrics trying to read Hamilton's Time series analysis. At the very beginning of the book, Hamilton considers an order-$1$ difference ...
246 views

### Closed-form solution for the PV of these cash flows

I've been trying to find a closed-form solution for the following equation, but without any progress. I notice that the cash flows can be separated in: C1,C3,C5... which are 0; C2,C6,C10... negative; ...
1 vote
228 views

### Why is NPV a biased measure?

I was studying return measures such as NPV and IRR from Damodaran's "Applied Corporate Finance" and one thing that he continuously mentioned was that NPV is biased towards projects with ...
92 views

### Calculate interest

I'm kinda stuck with the following problem. I am given the terms in Month, a net-value, a residual value, and a monthly rate. Now my job is to calculate the interest. Usually I am giving the interest ...
82 views

### Discounted-cash-flow-analysis: Is it possible to calculate the the flow of cash given a certain fixed net present value?

Is it possible to calculate the flow of cash in each period given a certain fixed net present value? I would like to be able to apply a certain weighting that can be applied to the cash flows of each ...
115 views

190 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 ...
110 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 (...
313 views

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### 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
76 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
447 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
54 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
1k 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 ...
675 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 ...
161 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
61 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 = ...
164 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 ...
56 views

237 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 ...
421 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 ...
158 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 ...
116 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
496 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 ...
757 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
14k 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 ...
41 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 ...
3k views

### NPV calculation of past flows [closed]

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 ...
266 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 ...
3k 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 ...
38 views

61 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 ...
3k 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 ...
193 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
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 ...