The Portable Financial Analyst: What Practitioners Need to by Mark P. Kritzman

By Mark P. Kritzman

Monetary pros are confronted with more and more technical subject matters which are theoretically advanced yet virtually beneficial in making a choice on the trade-off among danger and go back. The moveable monetary Analyst, moment version is a distinct selection of essays that handle the center of each analyst's and investor's difficulty: easy methods to make judgements within the face of unknown forces and the way to say a few keep an eye on over the result

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Extra resources for The Portable Financial Analyst: What Practitioners Need to Know, 2nd Edition

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Qxd 7/25/03 11:07 AM Page 29 29 e natural logarithm of the quantity 1 plus the discrete rate of return must therefore equal the corresponding continuous rate of return. 53 percent. 53 percent, our investment will grow to $110. 0953, is called the exponential. 0953 We can also compute the continuous rate of return within a period by subtracting the natural logarithm of the beginning value from the natural logarithm of the ending value. 50 after three years. 8216, respectively. 55 percent. This continuous return corresponds to a yearly discrete return of 50 percent.

75 years, the estimate that accounts for the relative sizes of the cash flows but ignores their present values. 1 shows. 1) t where D = duration n = number of cash flows t = time to receipt of the cash flow C = cash flow amount y = yield to maturity PROPERTIES OF DURATION It is apparent from the formula for Macaulay’s duration that its value depends on three factors: the final maturity of the bond, the coupon payments, and the yield to maturity. If we hold constant the size of the coupon payments and the yield to maturity, duration in general increases with a bond’s maturity.

75 percent. This example illustrates how compounding skews the distribution of cumulative returns toward the right, or further above the average return. The precise nature of this skewness after many periods conforms to a lognormal distribution. If we convert these compounded returns after two periods into logarithmic returns by taking the natural logarithms of the quantities 1 plus the cumulative discrete returns, we find that they are distributed symmetrically around the expected logarithmic return.

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