Questions tagged [present-value]
The present-value tag has no usage guidance.
50
questions
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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 ...
0
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0answers
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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0answers
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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0answers
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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0answers
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 ...
0
votes
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 ...
0
votes
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 $NPV(r_m)>NPV(r_p)=0$.
$$
NPV(r,f_i)=\sum_{...
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0answers
35 views
How to compute the yield to maturity on a zero-coupon 3 year bond in this case?
Suppose I have the following problem:
We have data on three bonds: a one-year zero-coupon bond (bond A), a twoyear zero-coupon bond (bond B), and a three-year bond with an annual coupon equal to 5% ...
1
vote
2answers
230 views
Exposure At Default: Calculating the present value
In this numerical example, I can't figure out with which numbers (when using the PV formula) to calculate exposure at default (EAD) as shown in the table.
The EAD is the value of the discounted future ...
0
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1answer
98 views
How is the present value of tax shield of constant and perpetual debt derived?
According to this site, the present value of tax shield of constant and perpetual debt is:
corporate tax rate × interest payment ÷ expectd return on debt
I understand the part about "corporate ...
3
votes
2answers
292 views
NPV of Future Investment: Two Approaches?
Suppose I expect the return on my investment to follow some upward trend: $R_t = R_0 e^{\mu t}$, where $\mu > 0$. If I wish to compute the present value of these inflows, I would have
$$
\int_o^\...
3
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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
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 (...
0
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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, ...
0
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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, ...
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
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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 ...
1
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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
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 $NPV>0$
$NPV = -I + \dfrac{CF_1}{1+k} > 0$
...
1
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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 $\sum_{i=1}^n C_i\,d(i)$. ...
1
vote
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 ...
0
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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 ...
0
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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 ...
0
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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
...
1
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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 = ...
0
votes
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 ...
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
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}...
3
votes
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 ...
2
votes
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 ...
-2
votes
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 ...
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
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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 ...
0
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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 ...
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
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 ...
-1
votes
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 ...
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
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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 ...
2
votes
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 ...
1
vote
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 ...
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
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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 ...
1
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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 ...
0
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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 ...
2
votes
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. ...
