No matter what your profession or career of choice, you ABSOLUTELY need to understand the basic tenets of finance ... your personal and professional success depends on it!
My name is Atif Ikram (Ph.D). I am a Professor of Finance at Arizona State University, and I have created this channel to promote financial literacy. My educational videos are geared towards students, young professionals and small/medium business owners who have limited to no background knowledge in corporate/personal finance.
Feel free to follow me on LinkedIn: www.linkedin.com/in/atif-ikram-654a309/
Ok this terminology is really confusing me about interest rates. You said at the start of the video "interest rates/yields". And you have maintained that. So interest rate is a different concept and yield is a different concept. In fact, here the yield is yield to maturity. You are saying that when an investor's required rate of return goes down, the interest rate (amount of returns) a bond gives goes down as well, which is confusing. Are you saying that because the investor's required rate of return goes down, the price of the bond goes up, so when you reinvest, you have to spend more money to purchase a new bond and so the returns you get will not be high enough because of the increased purchase price? Or is there something else that just makes people issue lower coupon payment bonds because of lower yield to maturity somehow?
So basically current yield is the return that the investment actually makes in a year. And yield to maturity is the investor's required rate of return. And current yield will keep reducing to ultimately match yield to maturity because an above-par bond price will move downwards towards par thanks to market correction. Alright, let's see if I can understand reinvestment risk now.
Hopefully this lets me understand your interest rate risk and reinvestment risk video now. I didn't think in the direction of bond prices which was helpful. But I keep getting confused in current yield and yield to maturity. And then people start saying stuff like interest rate went up and I start thinking about bank interest rates going up instead of an investor's required rate of return. My mind is a mess right now lol. Edit: Wait you have a video on that too what the heck. Actual life saver.
4:00 if the odds of the unexpected gain equal the odds of the unexpected loss and the amounts are the same(40k each), shouldn't they cancel each other and still net you the original 320K expected?
Thank you for this video! But I keep getting stuck at the EBIT(1+t) calculations. Could you kindly send me the link to the video where you explained this
Thank you Professor Ikram! Very helpful and easy to follow.
Месяц назад
Hello, excellent video as always!!! I have one question. In the end where we find that, when we sell after 1 year, our return is 4,92%...does that mean we would NOT want to sell? For the reason that if we held the bond to maturity we would have 5,32% > 4,92% ???
Question. So does this include the standard deduction? For example if the taxes owed are 33000 would I then subtract the standardized deduction for whatever that year is? 33000-14000 for example would be 19000 left over that I would actually owe?
Good question. The calculation in this video is based on what you are left with AFTER the deducions and credits have been accounted for. So, no. You would NOT subtract the standard deduction from this number.
Thank you so much sir!! I’m self learning for Cfa exam being a non finance major - your videos are incredibly helpful!! Please keep sharing valuable knowledge!
Of course. I calculated the Present Value of 320,000 as 320,000/1.05, since 5% is the discount rate. From that number I subtracted $280,000 to get $24,761.90. For a deeper understanding of this, please check out this video of mine: ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-Iz79J4uDnAo.htmlsi=BIYaNxtcUFeTVv-m And for a comprehensive playlist on DCF: ru-vid.com/group/PLQspRe0CBEvhnGaQi18a8I4v8DvL_HWo_&si=6ZGdl8sQpK6dpINU
I hate knowing im missing something but the step by step instructions you give tells me ppl like you are missing from the world and we need more people like you thank you.
For bonds paying semi annually, can we consider the discount rate as 10% and coupon rate as 80 while considering the maturity as 7 years? will that make any difference while calculating.
i was stuck on a problem for hours and couldn't get the right answer. 5 minutes into your video and I solved it. what an absolute legend. you earned a new subscriber!!
Hi! Sorry, just realized that the formula got cut off! You can view it here: cmaexamacademy.com/wp-content/uploads/2016/10/Screen-Shot-2016-10-26-at-12.36.18-AM.png