武汉大学公司金融课件(二).docVIP

GROWING PERPETUITY An annuity in which the cash flow continues forever, but grows at a constant rate of “g” per year. The stream of income looks like: PV0 = C1 + C1(1+g) + C1(1+g)2 +… 1 + r (1+r)2 (1+r)3 Fortunately, there is an easier way to present and calculate this value. PVgrowing perpetuity = C1_ r – g This is a very important equation in the evaluation of common stock. FVt = PV * ( 1 + r )t PV = FVt * ___1____ ( 1 + r )t PVA(r,t) = C * 1 – (1/(1 + r)t) r FVA(r,t) = C * ( 1 + r )t - 1 r PVperpetuity = C r PV growing perpetuity = __C1_ r – g WHAT IS THE INTEREST RATE? Your banker offers the following 5 choices: 7.75% compounded daily 7.75% compounded weekly 7.75% compounded monthly 7.75% compounded quarterly 8 % compounded annually WHICH OPTION DO YOU PREFER? STATED or QUOTED INTEREST RATE the interest rate expressed in terms of the interest payment made each period. Example: a quoted rate of 7.75% per year, compounded weekly. Example: a stated rate of 7.75% per year, compounded monthly. EFFECTIVE ANNUAL RATE: EAR: the interest rate expressed as if it were compounded once per year. EAR = ( 1 + QR/m)m – 1 Where: QR= quoted rate per year m = number of times compounded per year. Example: a quoted rate of 7.75% per year, compounded weekly. EAR = ( 1 + .0775/52)52 – 1 EAR = ( 1 + .00149)52 – 1 EAR = 8.052% EXAMPLE At the local loan shark, you pay $1 per week compounded weekly for every $100 that you borrow. Actually sounds very lenient doesn’t it? What is the EAR? EXAMPLE: Mortgages are quoted in annual rates but are usually compounded semi-annually. What is the EAR for a 9% mortgage? DEFINITION ANNUAL PERCENTAGE RATE (APR) The interest rate charged per period multiplied by the number of periods per year. EXAMPLE A credit card requiring monthly payments carries an APR of 14.4% and interest is calculated and compou