Questions tagged [present-value]
The present-value tag has no usage guidance.
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0answers
40 views
Newbie question on Net Present Value with Constant Growth
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
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1answer
49 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
42 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
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1answer
75 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
32 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
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1answer
2k 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
134 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
139 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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votes
1answer
62 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
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1answer
88 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
178 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
208 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
9k 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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votes
1answer
37 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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votes
2answers
1k 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
222 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 ...
4
votes
1answer
1k 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
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1answer
29 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
57 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
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1answer
499 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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2answers
122 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
80 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
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1answer
56 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
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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 ...
0
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1answer
63 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
2k 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
155 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. ...
