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richer

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tT
发表于 2011-7-13 15:46 | 只看该作者

Time value of money

money
For quarterly compounding, some question have calculated PV by calculating the EAR first, then used EAR to determine PV. So far I have been using the approach of compounding periods e.g. N=no of compounding periods i.e. if 5 years and quarterly compounding means N=20 and if the given rate is 5% then I/Y=5/4. Is there any difference in two approaches? Do they both lead to same result? Am I confused between bond and TVM problems?
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studyn

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2#
发表于 2011-7-13 15:47 | 只看该作者
I think they yield the same result.

Take a small example:
10% stated annual rate has 2.5% quarterly rate

Its EAR = 1.025^4-1=10.38%.

It's basically the same when you use N=4 and I/Y = 2.5

Cheers.

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rgonzalez

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3#
发表于 2011-7-13 15:47 | 只看该作者
I think for the question I got wrong did not yield the same. Does anyone else have any other opinion on this?

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dontknow1987

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4#
发表于 2011-7-13 15:47 | 只看该作者
It depends how they provide the rate of return.

If they give the periodic rate say 10% compounded semi annually, then u need to convert it to EAR if using N yearly periods:

EAR = (1+periodic)^(m) ] - 1

periodic = stated rate / m

so in this example...10% compounded semiannually is the stated rate:

EAR = ((1 + (.10/2))^(2)) - 1 = 10.25% annual rate = use that rate with N = annual periods.

both approaches do yield the same result as long as the I and the N match in units (ie: both monthly) but I would say it is better to convert the stated rate to an annual rate for many questions.

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pacmandefense

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5#
发表于 2011-7-13 15:47 | 只看该作者
ext Wrote:
-------------------------------------------------------
> It depends how they provide the rate of return.
>
> If they give the periodic rate say 10% compounded
> semi annually, then u need to convert it to EAR if
> using N yearly periods:
>
> EAR = (1+periodic)^(m) ] - 1
>
> periodic = stated rate / m
>
> so in this example...10% compounded semiannually
> is the stated rate:
>
> EAR = ((1 + (.10/2))^(2)) - 1 = 10.25% annual rate
> = use that rate with N = annual periods.
>
> both approaches do yield the same result as long
> as the I and the N match in units (ie: both
> monthly) but I would say it is better to convert
> the stated rate to an annual rate for many
> questions.


If both of them yield the same result then why clause?

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siavosh

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6#
发表于 2011-7-13 15:47 | 只看该作者
Why dont you post the question you got wrong here? It's easier to do on example than explain generally. If you want a good answer, post a detailed question!

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Jolyn

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7#
发表于 2011-7-13 15:47 | 只看该作者
maxmeomeo Wrote:
-------------------------------------------------------
> Why dont you post the question you got wrong here?
> It's easier to do on example than explain
> generally. If you want a good answer, post a
> detailed question!


Question I am not posting because of copyright issue..

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