FIN 3104 Lecture Notes - Lecture 11: Standard Deviation, Yield Curve, Opportunity Cost
17 Oct 2016
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Value of anything is pv of cash flows. Foundations of risk analysis: definition of risk, relative measure of degree of variability of possible outcomes over time. Keyyyyy= the only thing that changed was the width of the distribution, not. Methods for describing risk of an asset held in isolation probability of winning or losing. Standard deviation: sqrt of variance ----absolute risk. Coefficient of variation: standard deviation / expected return. 72 / (i-rate) at 9%, it takes 8 years to double. Ordinary annuity: cash flows occur at end of each time period. Annuity due: cash flows occur at beginning of each time period, so each cash flow has been moved forward 1 period. Fv(annuity due) = fv (ordinary annuity) x( 1+i) Pv (annuity due) = pv (ordinary annuity) x (1+i) M = # of times compounding occurs per year: monthly, m= 12, daily, m= 365. Fv = pv (1 + (i/m))^nm ompetitive markets & profitable projects.
