Introduction to Computational Finance and Financial ...
[Pages:56]You can't see this text!
Introduction to Computational Finance and Financial Econometrics Return Calculations
Eric Zivot
Winter 2015
Eric Zivot (Copyright ? 2015)
Return Calculations
1 / 56
Outline
1 The time value of money Future value Multiple compounding periods Effective annual rate
2 Asset return calculations
Eric Zivot (Copyright ? 2015)
Return Calculations
2 / 56
Outline
1 The time value of money Future value Multiple compounding periods Effective annual rate
2 Asset return calculations
Eric Zivot (Copyright ? 2015)
Return Calculations
3 / 56
Future value
$V invested for n years at simple interest rate R per year Compounding of interest occurs at end of year
FVn = $V ? (1 + R)n, where FVn is future value after n years
Eric Zivot (Copyright ? 2015)
Return Calculations
4 / 56
Example
Consider putting $1000 in an interest checking account that pays a simple annual percentage rate of 3%. The future value after n = 1, 5 and 10 years is, respectively,
FV1 = $1000 ? (1.03)1 = $1030, FV5 = $1000 ? (1.03)5 = $1159.27, FV10 = $1000 ? (1.03)10 = $1343.92.
Eric Zivot (Copyright ? 2015)
Return Calculations
5 / 56
Future value
FV function is a relationship between four variables: FVn, V , R, n. Given three variables, you can solve for the fourth:
Present value:
V
=
(1
FVn + R)n
.
Compound annual return:
R=
FVn
1/n
- 1.
V
Investment horizon:
n
=
ln(FVn/V ) ln(1 + R)
.
Eric Zivot (Copyright ? 2015)
Return Calculations
6 / 56
Outline
1 The time value of money Future value Multiple compounding periods Effective annual rate
2 Asset return calculations
Eric Zivot (Copyright ? 2015)
Return Calculations
7 / 56
Multiple compounding periods
Compounding occurs m times per year
FVnm = $V ?
1+ R m
m?n
,
R = periodic interest rate. m
Continuous compounding
FVn
=
lim $V
m
?
1+ R m
m?n
= $VeR?n,
e1 = 2.71828.
Eric Zivot (Copyright ? 2015)
Return Calculations
8 / 56
................
................
In order to avoid copyright disputes, this page is only a partial summary.
To fulfill the demand for quickly locating and searching documents.
It is intelligent file search solution for home and business.
Related download
- example 1 answer southern methodist university
- stock indexes understanding stock index futures
- introduction to computational finance and financial
- i reading ii return calculation and dividends iii
- chapter 1 return calculations university of washington
- are dividends and stock returns predictable new evidence
- total return index morningstar methodology paper
- total return index calculation methodology
- july 2019 stoxx calculation guide
Related searches
- introduction to business finance pdf
- introduction to finance 15th edition
- introduction to finance books
- introduction to finance online course
- introduction to finance ppt
- introduction to finance pdf book
- introduction to finance textbook
- introduction to finance pdf
- healthcare finance and financial management
- introduction to finance and accounting
- introduction to corporate finance pdf
- define finance and financial management