Rates of return Example 2.4: Using the effective annual rate (EAR), calculate the holding period return for one year if a bank quotes 6% interest, but pays interest (1) annually, (2) monthly, (3) daily, (4) every second. What is his average rate of return? 7Ĩ See Solution Interest conversion 2.5 Continuous compounding 2.6 Natural logarithms 2. Rates of return 2.3 Geometric mean and n th root Example 2.3: A fund manager achieves +15%, -8%, +3%, and +12% in four successive years. Rates of return 2.1 Compounding 2.2 Discounting Say r = 6%, n = 3: T 0 T 1 T 2 T 3 $100 $106 $ $ x 1.06 x 1.06 x In general: FV PV (1 Compounding n r) FV PV n (1 r) Discounting 6ħ See Solution 3 2. Rates of return 2.1 Compounding 2.2 Discounting 2.3 Geometric mean and n th root 2.4 Interest conversion 2.5 Continuous compounding 2.6 Natural logarithms 5Ħ Q4 Quartic Training Calculator Tutorial See Solution 2 2. Basic algebra and calculator usage 1.1 Brackets and basic calculations 1.2 Clearing:, CE/C, CE/C CE/C, etc 1.3 Memories: STO, RCL 1.4 Constant function, K 1.5 Negative numbers 1.6 Percentages 4ĥ 2. Calculator setup and introduction 0.1 Decimal places 0.2 Algebraic operating system 0.3 The reset feature 0.4 P/Y 3Ĥ 1. 1 Chartered Financial Analyst Program Texas Instruments BA II Plus calculator tutorial Nicholas J Blain, CFA Chief Executive Quartic Training 1Ģ outline 0.
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