Cost of Funds Methods of Calculation (see Excel file; Cost of Funds Quarter 1)

Cost =(( Price @ End Price @ Start)/Price @ Start) x 365/92 Price @.... = Market Value @......
1. Find the Price @ End = PV = PV of Coupons + PV of Face Value (x quarterly adjustment if required)
2. Find the cost of funds
2 Approaches (see Cost of Funds Qtr 1 file on Blackboard)
1. As above
2. Approximate (using modified duration)
Your estimate of Yield at End/2 (see Q2 rates
for actual)
7.21%/2 (use mid rates)

Method 1:
Coupon rate rate/2

Face Value

For DB30:
1. P@End = (.03325 x $100 [1-(1.03605) -20 /.03605] + $100(1.03605) -20)(1.03605)0.5 = $97.77
2. Cost = (($97.77-$100)/$100) x 365/92 = -0.0883 or -8.83%
See Performance report
page 1 and Cost of Funds
file

Method 2 (Approximate):

Cost =( -DM x i x 365/92) + Yield @ End

For DB30; (-7.22 x (7.21% - 6.65%) x 365/92) + 7.21% = -16.041 + 7.21% = -8.83%

See Initial
Positions Sheet

Estimated yield
@ End
(mid rate)

Yield @
start

Adjustment to bring
to the end of
Quarter 1