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13 Cards in this Set
- Front
- Back
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What is NPV?
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The NPV is the amount determined by discounting a projected cash inflows at the required rate of return and subtracting the original investment. If the result is a positive number, the IRR is greater than Re. If NPV=0, then IRR=Re. If NPV is negative, then IRR is less than Re.
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What is YTM
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YTM is determined by solving for the earnings rate that equates the current market price of the bond to the cash flows from the bond.
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How do reverse mortgages work.
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The lender makes payments to the homeowner on the basis of fmv of the home and the age of the borrower at the time the loan is made.
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What is the IRR
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The IRR tells you the rate of return that will be realized given the original investment amount and project cash flows. It assumes the reinvestment rate equals the IRR. .
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When should you use serial payment approach and how is it calculated?
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Calculating retirement needs, life insurance and funding a child's higher education. Calculated using an inflation-adjusted interest rate i.e., {1+r/1+i }-1 * 100
Each year the payments are increased by the amount of inflation. |
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How do you adjust + and - signs while doing TVM calculations
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- if out flow, + if influe usually. Always use -PV if solving for FV
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What mode should mortgage or payments usually calculated BEG or END
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END
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Wha is a shortcut method of calculating education funding
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Be aware of critical components: child aages, no of education yrs, current cost of college, ieducation inflation, rate of return and number of years to save. CF=0 and CF 1-N =0 during no cost period. Once you have NPV don't clear calculator use as PV with FV=0 and solve for payments.
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How do you calculate retirement needs-annuity method
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1 step is determine the amount of money needed annualy
2. in BEG MOD using pmt from step 1, solv for PV, using inflation adjusted discount rate 3. calculate savings amount each year |
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How is the retirement need capital preservation calculation
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Capital preservation maintains the original balance needed at retirement for entire life expectancy
1. start with total PV savings needed per from step 2 as FV 2. Using Re as I, and N for retirement period, solve for PV 3. Add result of 2 to original PV |
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How is the retirement purchasing power preservation model calculated
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Same as the capital preservation, however, use an inflation adjusted discount rate.
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How do you calculate the dividend growth model when there are mlultiple changes in growth
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Run dividends until it is becomes constant,. Note that no of CF will be X of CF during constant period. Add new growth rate to last period.
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What is the shortcut key for calculating standard deviation
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Shift 8 "SxSy
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