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Quantitative Investment Analysis von DeFusco, Richard A. (eBook)

  • Erscheinungsdatum: 15.10.2015
  • Verlag: Wiley
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Quantitative Investment Analysis

Your complete guide to quantitative analysis in the investment industry Quantitative Investment Analysis, Third Edition is a newly revised and updated text that presents you with a blend of theory and practice materials to guide you through the use of statistics within the context of finance and investment. With equal focus on theoretical concepts and their practical applications, this approachable resource offers features, such as learning outcome statements, that are targeted at helping you understand, retain, and apply the information you have learned. Throughout the text's chapters, you explore a wide range of topics, such as the time value of money, discounted cash flow applications, common probability distributions, sampling and estimation, hypothesis testing, and correlation and regression. Applying quantitative analysis to the investment process is an important task for investment pros and students. A reference that provides even subject matter treatment, consistent mathematical notation, and continuity in topic coverage will make the learning process easier - and will bolster your success. Explore the materials you need to apply quantitative analysis to finance and investment data - even if you have no previous knowledge of this subject area Access updated content that offers insight into the latest topics relevant to the field Consider a wide range of subject areas within the text, including chapters on multiple regression, issues in regression analysis, time-series analysis, and portfolio concepts Leverage supplemental materials, including the companion Workbook and Instructor's Manual, sold separately
Quantitative Investment Analysis, Third Edition is a fundamental resource that covers the wide range of quantitative methods you need to know in order to apply quantitative analysis to the investment process. RICHARD A. D E FUSCO, CFA, is a Professor of Finance at the University of Nebraska-Lincoln. He earned his CFA charter in 1999 and started CFA grading in 2000. DENNIS W. M C LEAVEY, CFA, is Faculty Advisor to the Ram Fund and Professor Emeritus of Finance and OR/MS at the University of Rhode Island. He obtained his CFA charter in 1990 and began CFA grading in 1995. JERALD E. PINTO, P H D, CFA, has been at CFA Institute since 2002 as Visiting Scholar, Vice President, and now Director, Curriculum Projects in the Credentialing Division for the CFA and CIPM Programs. DAVID E. RUNKLE, CFA, is Director of Quantitative Research for Trilogy Global Advisors, LP. He joined Trilogy in 2007 from Piper Jaffray, where he was an Investment Research Manager.

Produktinformationen

    Format: ePUB
    Kopierschutz: AdobeDRM
    Seitenzahl: 640
    Erscheinungsdatum: 15.10.2015
    Sprache: Englisch
    ISBN: 9781119104605
    Verlag: Wiley
    Größe: 6814 kBytes
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Quantitative Investment Analysis

CHAPTER 1
THE TIME VALUE OF MONEY

Richard A. DeFusco, CFA

Dennis W. McLeavey, CFA

Jerald E. Pinto, PhD, CFA

David E. Runkle, PhD, CFA
LEARNING OUTCOMES

After completing this chapter, you will be able to do the following:

interpret interest rates as required rates of return, discount rates, or opportunity costs;
explain an interest rate as the sum of a real risk-free rate and premiums that compensate investors for bearing distinct types of risk;
calculate and interpret the effective annual rate, given the stated annual interest rate and the frequency of compounding;
solve time value of money problems for different frequencies of compounding;
calculate and interpret the future value (FV) and present value (PV) of a single sum of money, an ordinary annuity, an annuity due, a perpetuity (PV only), and a series of unequal cash flows;
demonstrate the use of a time line in modeling and solving time value of money problems. 1. Introduction

As individuals, we often face decisions that involve saving money for a future use, or borrowing money for current consumption. We then need to determine the amount we need to invest, if we are saving, or the cost of borrowing, if we are shopping for a loan. As investment analysts, much of our work also involves evaluating transactions with present and future cash flows. When we place a value on any security, for example, we are attempting to determine the worth of a stream of future cash flows. To carry out all the above tasks accurately, we must understand the mathematics of time value of money problems. Money has time value in that individuals value a given amount of money more highly the earlier it is received. Therefore, a smaller amount of money now may be equivalent in value to a larger amount received at a future date. The time value of money as a topic in investment mathematics deals with equivalence relationships between cash flows with different dates. Mastery of time value of money concepts and techniques is essential for investment analysts.

The reading 1 is organized as follows: Section 2 introduces some terminology used throughout the reading and supplies some economic intuition for the variables we will discuss. Section 3 tackles the problem of determining the worth at a future point in time of an amount invested today. Section 4 addresses the future worth of a series of cash flows. These two sections provide the tools for calculating the equivalent value at a future date of a single cash flow or series of cash flows. Sections 5 and 6 discuss the equivalent value today of a single future cash flow and a series of future cash flows, respectively. In Section 7, we explore how to determine other quantities of interest in time value of money problems.
2. Interest Rates: Interpretation

In this reading, we will continually refer to interest rates. In some cases, we assume a particular value for the interest rate; in other cases, the interest rate will be the unknown quantity we seek to determine. Before turning to the mechanics of time value of money problems, we must illustrate the underlying economic concepts. In this section, we briefly explain the meaning and interpretation of interest rates.

Time value of money concerns equivalence relationships between cash flows occurring on different dates. The idea of equivalence relationships is relatively simple. Consider the following exchange: You pay $10,000 today and in return receive $9,500 today. Would you accept this arrangement? Not likely. But what if you received the $9,500 today and paid the $10,000 one year from now? Can these amounts be considered equivalent? Possibly, because a payment of $10,000 a year from now would probably be worth less to you than a payment of $10,000 today. It would be fair, theref

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