New answers tagged finance
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If you have $50 000 today and you invest it for 10 years and earn 6% interest annually and your investment is growing year by year then the correct answer would be as follows:
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As Olaf said you are not correct. The correct answers for NPV problem are:
Person A: $NPV = \frac{2200}{(1+0,05)^2} - \frac{1000}{(1+0,05)} - 1000 = 43,08$
Person B: $NPV = \frac{2200}{(1+0,1)^2} - \frac{1000}{(1+0,1)} - 1000 = - 90,91$
Person A should carry on with investment, but person B should not as the investment yields negative present value and wont ...
0
I interpret the question differently: $50,000k being the recurring and increasing cash flow itself, not initial capital.
1
Unfortunately I do not agree with the answer provided by FutForFut.
In my opinion answer of 60 491,63$ can be correct under certain circumstances.
There is also another correct answer, but I cannot agree with answer of 81 474,88$.
More specifically. Problem was “I am paid $50,000 now, growing at 6% per year for a total of 10 years, but the discount rate is 4%...
5
This is the result of the Sherman-Morrison inversion for the sum of an invertible matrix and an outer product. You will find this (and many other helpful methods) in the Matrix Cookbook. Specifically, this is equation 160 on p 18:
$$
\left(\boldsymbol{A}+\boldsymbol{bc}^T\right)^{-1}=\boldsymbol{A}^{-1}-\frac{\boldsymbol{A}^{-1}\boldsymbol{bc}^T\boldsymbol{A}...
1
There's a limited amount of historical data available here: https://www.global-rates.com/en/interest-rates/eonia/eonia.aspx.
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There is a dynamic basis spread between 3M EONIA and 3M EURIBOR. It is consistently a few basis points and that might be negligible enough for 'your calculation' but maybe it isn't.
3M EONIA is saved data by brokers and is available in Bloomberg and possibly the St Louis Fed.
Note that you cannot find daily OIS data and compound the data because that is time ...
2
As people in the comments noted, signal broadly refers to a trigger variable that denotes an investment decision. This is normally a boolean variable (i.e. 0 or 1) but could be continuous (0 to 1) or any other range (e.g. -1/0/1 sell/hold/buy), depending on what your execution algo might dictate.
Just wanted to add that this terminology comes from the ...
3
I grappled with different compounding conventions for a while when I first joined the world of finance. After some time, I came to the conclusion that the best analogy is that of different units of speed in different countries: i.e. in the UK, the unit of speed is miles, whilst in continental Europe, it is kilometers. A car travelling at 100mph is travelling ...
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They are different because there are different conventions in different places.
Whilst it would make the maths more consistent to use discount (or accrual) factors to describe interest, the foremost concern historically has been absolute clarity on amounts of money, so having a simple way to calculate the coupon payment on a given bond. So a UK Gilt paying 5%...
1
Two thoughts that I'm interested in at the moment...
A Deep Hedging-stype approach to risk management (eg. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3355706)
Fundamentally all of derivative pricing quant finance is Model-Driven. Why? Probably mostly because it's easier. However, we now have maybe 30 years of high frequency tick data available ...
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