Questions tagged [present-value]

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33 views

For investment analysis, is it helpful to draw charts of present value (PV) against rate (%)

Background I prepared a prototype getting cash flow as input and drawing as output some charts like present value (PV) against rate (%). The points with big radius on chart of NPV against rate are IRR ...
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36 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 ...
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16 views

Calculate series of cashflows based on a fixed value for their difference in net present value

I have two time series of cashflows, one for renting a building and one for buying it. Normally I calculate the net present value for both cashflows and then calculate their difference. I do this for ...
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29 views

Net present value and inflation, risk, return etc

When calculating the net present value, it compares the present value of money today to the present value of money in the future, taking inflation, returns and risk into account? question 1. So if ...
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33 views

Calculation cash flows for NPV = 0: numerical solutions

I have two time series of cashflows, one for renting a building and one for buying it. Normally I calculate the net present value for both cashflows and then calculate their difference. I do this for ...
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0answers
31 views

Mortage Backed Securities: interest-only (IO) and principal-only (PO) - Present Value

Does any of you know what are the PV (present value) mathematical equations for Interest Only, and Principal Only MBS's (assuming no prepayments, or defaults)? I am not familiar with Mortgages, so I ...
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1answer
76 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_{...
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35 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% ...
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2answers
230 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 ...
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1answer
98 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 ...
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2answers
292 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^\...
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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 ...
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1answer
81 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 (...
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4answers
263 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, ...
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2answers
379 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, ...
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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 $...
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2answers
324 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 ...
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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 ...
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2answers
270 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 $NPV>0$ $NPV = -I + \dfrac{CF_1}{1+k} > 0$ ...
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1answer
44 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 $\sum_{i=1}^n C_i\,d(i)$. ...
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1answer
560 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 ...
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1answer
302 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 ...
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1answer
98 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 ...
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1answer
104 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 ...
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0answers
54 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 = ...
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1answer
115 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 ...
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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)}...
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1answer
5k 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}...
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1answer
202 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 ...
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3answers
335 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 ...
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1answer
137 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 ...
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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 ...
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1answer
332 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 ...
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1answer
519 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 ...
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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 ...
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1answer
40 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 ...
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2answers
3k 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 ...
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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 ...
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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 ...
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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 ...
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1answer
66 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 ...
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1answer
841 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 ...
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4answers
354 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 ...
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2answers
92 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 ...
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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 ...
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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 ...
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3answers
146 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 ...
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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 ...
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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 ...
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2answers
4k 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. ...