Under a Semi-Annual Compounding Convention, the Present Value of A n

question 3

Multiple Choice

Under a semi-annual compounding convention, the present value of a $n$ -period cashflow using its ytm $y$ is given by $P = C / ( 1 + y / 2 ) ^ { n }$ . Which of the following is an equivalent way of expressing the same present value?

• A) \(P = C \cdot d _ { n } \cdot ( n / 2 )\) , where \(d _ { n }\) is the discount function for \(n\) periods, and \(n / 2\) is the time to maturity of the cash-flow.
• B) \(P = C e ^ { - z _ { n } \times n / 2 }\) , where \(Z _ { n }\) is the semi-annual basis zero-coupon rate for \(n\) periods.
• C) \(P = C / \prod _ { j = 1 } ^ { n } \left( 1 + f _ { j } \right)\) , where \(f _ { j }\) is the forward rate for period \(j\) .
• D) None of the above.

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Definitions:

Statement Of Retained Earnings

A financial document that shows how a firm's earnings are reinvested in the business or paid out to shareholders.

Multiple-step

An income statement format that shows several steps to determine net income, including gross profit, operating income, and other income and expenses.

Balance Sheet

A financial statement that shows a company's assets, liabilities, and shareholders' equity at a specific point in time.

Income Statement

A financial report that shows a company's revenues, expenses, and net income over a specific period.