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SI527 Lecture 3

The document contains mathematical equations and calculations related to financial modeling, specifically focusing on present value and future value calculations. It discusses various formulas for discounting cash flows and includes examples with specific values for interest rates and time periods. The content appears to be structured around the application of these formulas in a financial context.

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Shreyas Katdare
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13 views9 pages

SI527 Lecture 3

The document contains mathematical equations and calculations related to financial modeling, specifically focusing on present value and future value calculations. It discusses various formulas for discounting cash flows and includes examples with specific values for interest rates and time periods. The content appears to be structured around the application of these formulas in a financial context.

Uploaded by

Shreyas Katdare
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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r t=T

P (0)

[0, t]

!t
P (t) = P (0) + r(s)P (s)ds.
0

r P

r P r P
r

P (T )
P (0) r n
P (T )
P (0) r
P (T )
P (0)

P (T )
P (0) = .
1 + rT

" r #−nT
P (0) = P (T ) 1 + ,
n
n
P (0) = P (T )e−rT .

P (0) P (T )

1 " r #−nT
Ds = , Dc = 1 + , Dcc = e−rT .
1 + rT n

{t0 , t1 , . . . , tn } [0, T ] t0 = 0 tn = T
(n+1) x = (x0 , x1 , . . . , xn ) xk k = 0, 1, . . . , n
t = tk

t0 = 0 tn = T

st
t0 = 0 x0 = 100 n=8
t = tk k = 1, 2, . . . , 8

x0 x0 = 100
t = t1

rx0
x1 = = 1.
4
t = t2

r(x0 + x1 )
x2 = = 1.01,
4

x = (100, 1, 1.01, 1.0201, 1.0303, 1.0406, 1.0510, 1.0615, 1.0752).

108.3

st

x = (100.0000, 1.0000, 1.0100, 1.0201, 101.0303, 2.0406, 2.0610, 2.0816, 2.1024)

(1200, −300, −300, −300, −300)

(−1200, 300, 300, 300, 300).


x y
x = −y

(−100, 3, 3, 3, 103)

r [0, T ]
x = (x0 , x1 , . . . , xn ) r
[0, T ] {t0 , t1 , . . . , tn }
t0 = 0 tn = T
 n
 ( ) *

 xk 1 + r(T − tk ) , ,



 k=0

 (n + ,n−k
rT
(x) = xk 1 + ,

 n

 k=0

 (n

 xk er(T −tk ) ,

k=0

f (t)

!T
(x) = f (t)er(T −t) dt.
0

rT
r̃ = .
n
r̃ r̃
n
(
(x) = xk (1 + r̃)n−k .
k=0

x = (1000, 1000, . . . , 1000, −12397.24)

x = (x0 , x1 , . . . , xn ) x
r [0, T ]
( n
(x) = x k Dk
k=0

Dk tk

 n
 ( xk

 , ,

 1 + rt

 k=0
k



 n
 ( xk
(x) = + ,k , ,
 rT

 k=0
1+

 n

 n

 (

 xk e−rtk ,

k=0

f (t)
!T
(x) = f (t)e−rt dt.
0
x = (−200, 60, 60, 60, 60) [0, 1]
{0, 0.25, 0.5, 0.75, 1}
r = 0.1
60 60 60 60
(x) = −200 + 0.1 + ) * 2 +) * 3 +) * ≈ 25.7185.
1+ 4 0.1 4
1 + 0.1
4
1 + 0.1
4
1 + 4

x = (x0 , x1 , x2 , . . . , xn )

(xk ) k = 1, 2, . . . , n
x0
x0 (x0 ) (xk ) k = 1, 2, . . . , n − 1

[tk−1 , tk ] k = 1, 2, . . . , n

xk = x k = 1, 2, . . . , n − 1
x xk

x0

(0, 60, 60, 60, 60) 225.7185,

x0 #= 0

x = (x0 , x1 , . . . , xn )
n

(0, 50, 50, 50)


r = 0.08

x = (−10, 2, 3, 5, 2)
r = 0.02

x1 = (−5000, 7200), x2 = (−5000, 0, 7600).

7200 7600
(x1 ) = −5000+ ≈ 1792.45, (x2 ) = −5000+ ≈ 1763.97.
1 + 0.06 (1 + 0.06)2
r
x = (x0 , x1 , . . . , xn )
r
T x
1
ρ= .
1 + rT
n

(x) = x0 + x1 ρ + x2 ρ2 + . . . + xn ρn ,

ρ (x) = 0

x0 + x1 ρ + x2 ρ2 + . . . + xn ρn = 0.

r
ρ

x = (−225.7185, 60, 60, 60, 60) x

60ρ4 + 60ρ3 + 60ρ2 + 60ρ − 225.7185 = 0.

ρ ≈ 0.975609 ρ
r ≈ 0.1 T =1 n=4
ρ ≈ −1.630576
r ≈ −6.4531
r ≈ 0.1
n=2

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