FCSE 3120 Lecture Notes - Lecture 29: Cash Flow, Premium Bond
20 Mar 2019
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Document Summary
Rates used by individual market participants to calculate fair present values (pv) Rates participants would earn by buying securities at current market prices (p) The fair present value (pv) of a security is determined using the required rate of return (r) as the discount rate. The current market price (p) of a security is determined using the expected rate of return or. Cf1 = cash flow in period t (t = 1, , n) ~ = indicates the projected cash flow is uncertain n = number of periods in the investment horizon. The realized rate of return ( r ) is the discount rate that just equates the actual purchase price ( ) to the present value of the realized cash flows (rcft) t (t = 1, , n) The present value of a bond (vb) can be written as: Fv = the par or face value of the bond, usually ,000. Int = the annual interest (or coupon) payment.
