Professor of Finance @ ebs.edu, Wannabe Scientist, Economist, Geek, Father.
Protected: Finance 1
Some guy
im your biggest fan
karapandza
Thank you so much for the nice words! These kind of messages keep me going and being better every year!
Guest
Hi! Which version of Principles of Corporate Finance do you recommend, 2013 or 2016? Thanks in advance
karapandza
All versions from 9 up are very similar. So I would opt to go with the cheaper one if you are buying.
Maximilian Werkhausen
hi! If I understood it correctly a coupon is basically the rate you receive on the bond you sold. (?) Then what exactly is a coupon bond? Or is there hardly any difference between the two?
karapandza
No. coupon is not the rate you receive once you sell a bond. Once you buy a bond, an issuer of the bond obliges that to you – the buyer of the bond, payes the face vale of the bond on the date of its maturity and in the case of non-zero coupon bonds, you get the coupons too. Usually these coupons are small percentages of the total face value and are payed every six months. So, the coupon is this small payment that you as a buyer of the bond would receive let’s say every six months. And the coupon bond is every bond that payed coupons.
Paolo
Hello Prof. Karapandza,
I was trying to solve the exercise number 12 page 32 of the ”Principle of corporate finance 9th ed” book.
I didn’t get why answering at the ”a” demand he discount the cash flow in year 1 with 5% and not 12%.
I know that it says that it is a sure payment and so we have to look at the US treasury interest rate, but in this case the alternative investment is the building construction so shouldn’t we discount the cashflow with 12% (that is the discount rate of the other) ?
Because otherwise how can we compare two project with different risk?
Thanks
karapandza
Hi Paolo,
I think that you are onto something here.
I really believe that this is wrong answer in the solution manual and that the discount rate should be proportional to risk. And diversifiable risk has nothing to do with this interpretation that the author is using….
So, all in all you are right, and the solutions are wrong.
And that make sme happy! And I am happy for two reasons. That means that you are really thinking and working hard but also, that I hopefully at least in part have done my job well.
Congrats,
Rasa
A
Hello Mr.Rasa I’ve a doubt regarding the term structure;
I didn’t understand if it is a curve where are plotted spot rates of zero cupon bond at different maturity (And from which we could create the yield to maturity of our bond looking at those spot rate) or whether there are plotted the yield to maturity of bonds of different maturity and so if I’ve a bond with maturity of 30 year I can see directly on the term structure the yield at 30 years. Or this second one is the (Yield curve)?
karapandza
Zero rates. That is why we calculate these rates directly from prices of zero coupon bonds of up to two years and for those over two years that always carry coupons we do the bootstrap.
In other words, in application to pricing, if you would like to discount a coupon paying bond that matures in 4 years and has coupon, every payment of this bond should be discounted with a different rate from the YC and not with a 4 year rate only.
A
Hi Prof. Karapandza,
How do you solve question 12 part (e) of the sample exam you uploaded regarding expected utility?
Thanks
karapandza
Hi,
Normally, you would plug in the numbers from the outcome matrix to the utility function. Then, you would get the matrix of the same size, but just containing values in the units of happiness. Then, in the next step you would calculate the expected utility of the each action, and then you would choose the action with the highest expected utility.
Cheers,
Rasa
disqus_OY2EF5y288
Hi Prof. Karapanza,
If is required to compute the YTM we have to compute in nominal annual with semiannual compounding?
And if is required to compute the IRR? The same? Or annual with annual compound?
karapandza
I really do not understand the question.
Semi-annual compounding
Hello Rasa,
is it true that when I want to compute a forward rate with a table giving annual spot rates with semi-annual compounding that I only change the exponent accordingly to the periods?
(1+spot rate for three years)^6 + (1+forward rate for 2 years)^4 = (1+spot rate for 5 years)^10 Does this hold?
Earlier I think I made the mistake of wanting to discount these forward rates, like when computing PV with semi-annual compounding (1+spot rate for three years/2)^6 + (1+forward rate for 2 years/2)^4 = (1+spot rate for 5 years/2)^10.
Thanks in advance
Same guy
Sorry, the table was given with annual compounding
A
What I want to do is calculate the forward rate with semi-annual compounding instead of annual compounding given a table where only rates with annual compounding are listed, I hope that clarifies my question.
Melanie
Hi Prof. Rasa,
I have a question concerning Problem 4c class 2. Why can I use the formula c/r as the value six month ago.
Thanks 🙂
karapandza
Let’s talk after our next class. I don’t fully understand your question and this is a quite tough problem.
Melanie
Thanks 🙂
Melanie
Dear Prof. Rasa,
I have one question concerning the exam: When we have to calculate the outcome matrix for the standard deviation of a portfolio: Do we need to write down the formula and all the steps for each possibility or can we write down only the solutions?
Thanks 🙂
karapandza
Hi Melanie,
It is perfectly OK that you write down only the solutions. As always there is a trade off. if you make a mistake, and I can not see how you calculate it, you would get less points than if I can see the whole procedure. But if all is correct, I am perfectly fine with it.
So, there is a trade off between the time you spend on writing and calculate it….