CPA BAR study
B1. M2 Effective Annual Rate (IF NO FEES) - ANS-STEP 1:
Stated interest rate / period = Periodic Rate
STEP 2:
((1 + periodic rate)^p) - 1) = Effective annual rate
B1. M2. Break-even point on call - ANS-Break even point on call = strike rate + cost
B1. M2. Break-even point on put - ANS-Break even point on put = strike rate - cost
B1. M2. Compound Interest - ANS-STEP 1:
Total # of periods = # of years * Periods per year
STEP 2:
Effective periodic rate = (annual % rate / n)
STEP 3:
Total amount of interest = FV of n = Po (1+i)^n
Po= Original Principal
i = interest rate calculated in step 2
n = # of periods
B1. M2. Effective annual percentage Rate - ANS-([1+(i/p)]^p)-1
i = stated interest rate
p = compounding periods per year
B1. M2. Effective Interest Rate - ANS-STEP 1:
Payment Per Period = (Principal * Stated annual rate) / (# of periods)
STEP 2:
(Payment per period) / (Net proceeds of loan)
Net proceeds of loan = Principal - (fees, charges, compensating balances)
Effective period rate * number of periods = Annual percent rate
, STEP 3:
((1 + Effective periodic interest rate)^(Periods)) - 1 = Effective annualized rate
B1. M2. Maturity Value Simple Interest - ANS-Principal + Interest
B1. M2. Required Rate of Return - ANS-STEP 1:
Nominal Risk free rate = real risk-free rate + expected inflation
STEP 2:
Required Rate of Return = Nominal risk free rate + risk premiums
B1. M2. Simple Interest - ANS-Simple Interest = Po (i) (n)
Po = original principal
i = interest rate per time period
n = # of time periods
B1. M2. Total Compound Interest - ANS-Total Compound Interest = Maturity Value (FV)
- Principal
B1. M2. Types of Risk - ANS-D - Diversifiable Risk
U - Unsystematic Risk (Non-market/firm-specific)
N - Nondiversifiable risk
S - Systematic risk (market)
B1. M2.Hedge Payables (Borrowed Funds) - ANS-Easier to do using example so 16%
annual rate and they want quarterly
A/P due of 1,000,000
STEP 1: FC interest rate
16% * 1/4 = 4% quarterly rate
STEP 2: PV
1,000,.04 = 961,538
STEP 3: convert to DC
FIND the PV...Current exchange rate is 8%
961,538*0.08 = 76,923
B1. M2 Effective Annual Rate (IF NO FEES) - ANS-STEP 1:
Stated interest rate / period = Periodic Rate
STEP 2:
((1 + periodic rate)^p) - 1) = Effective annual rate
B1. M2. Break-even point on call - ANS-Break even point on call = strike rate + cost
B1. M2. Break-even point on put - ANS-Break even point on put = strike rate - cost
B1. M2. Compound Interest - ANS-STEP 1:
Total # of periods = # of years * Periods per year
STEP 2:
Effective periodic rate = (annual % rate / n)
STEP 3:
Total amount of interest = FV of n = Po (1+i)^n
Po= Original Principal
i = interest rate calculated in step 2
n = # of periods
B1. M2. Effective annual percentage Rate - ANS-([1+(i/p)]^p)-1
i = stated interest rate
p = compounding periods per year
B1. M2. Effective Interest Rate - ANS-STEP 1:
Payment Per Period = (Principal * Stated annual rate) / (# of periods)
STEP 2:
(Payment per period) / (Net proceeds of loan)
Net proceeds of loan = Principal - (fees, charges, compensating balances)
Effective period rate * number of periods = Annual percent rate
, STEP 3:
((1 + Effective periodic interest rate)^(Periods)) - 1 = Effective annualized rate
B1. M2. Maturity Value Simple Interest - ANS-Principal + Interest
B1. M2. Required Rate of Return - ANS-STEP 1:
Nominal Risk free rate = real risk-free rate + expected inflation
STEP 2:
Required Rate of Return = Nominal risk free rate + risk premiums
B1. M2. Simple Interest - ANS-Simple Interest = Po (i) (n)
Po = original principal
i = interest rate per time period
n = # of time periods
B1. M2. Total Compound Interest - ANS-Total Compound Interest = Maturity Value (FV)
- Principal
B1. M2. Types of Risk - ANS-D - Diversifiable Risk
U - Unsystematic Risk (Non-market/firm-specific)
N - Nondiversifiable risk
S - Systematic risk (market)
B1. M2.Hedge Payables (Borrowed Funds) - ANS-Easier to do using example so 16%
annual rate and they want quarterly
A/P due of 1,000,000
STEP 1: FC interest rate
16% * 1/4 = 4% quarterly rate
STEP 2: PV
1,000,.04 = 961,538
STEP 3: convert to DC
FIND the PV...Current exchange rate is 8%
961,538*0.08 = 76,923
