Table of Contents

Chapter 5............................................................................................................................................................................... 1
Chapter 6............................................................................................................................................................................... 1

Chapter 5

1
FV annuity  =C× 1+r  -1
n

r
FV  Annuity  $100,000
C= =
1 1
1+r  -1 1.004868  -1
n 120

r 0.004868 
=$615.47 per month.
APR
Interest Rate per Compounding Period=
m
(m=number of compounding periodsper year)
m
 APR 
1 + EAR= 1 +
 m 
(m = number of compounding periods per year)

1 + Nominal rate
Growth in Purchasing Power=1 + Real Rate=
1 + Inflation rate
Growth of Money
=
Growth of Prices

Nominal Rate - Inflation Rate

Real Rate= » Nominal Rate - Inflation Rate
1 + Inflation rate

Cn
PV=
(1 + rn )n

Chapter 6

Coupon Rate × Face Value

CPN=
Number of Coupon Payments per Year
1/n Yields to maturity
 Face Value 
1+YTMn =  
 Price 
 face value
Price= N
(1+YTM )
Return on a coupon bond comes from:

– The difference between the purchase price and the principal value (purchase price- principal value)

Yield to Maturity of a Coupon Bond

Annuity Factor using the YTM (y)
      
1 1  FV
P= CPN ×  1 -  +
y  (1 + y)N  (1 + y)N
                
Present Value of all of the periodic coupon payments Present Value of the
Face Value repayment
using the YTM (y)