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Formula Sheet

The document provides formulas related to bonds, statistics, quadratic equations, duration, and portfolio returns. It defines the price of a bond as a function of coupon, yield to maturity, time to maturity, and face value. It also defines expectations and variances of random variables, the solution to a quadratic equation, modified duration as Macaulay duration divided by 1 plus yield, and portfolio return as a weighted average of asset returns.

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sagarox7
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181 views1 page

Formula Sheet

The document provides formulas related to bonds, statistics, quadratic equations, duration, and portfolio returns. It defines the price of a bond as a function of coupon, yield to maturity, time to maturity, and face value. It also defines expectations and variances of random variables, the solution to a quadratic equation, modified duration as Macaulay duration divided by 1 plus yield, and portfolio return as a weighted average of asset returns.

Uploaded by

sagarox7
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

FORMULA SHEET

The price of a bond, , is given by:

[1
]
+
(1 + )
(1 + )

where is the coupon, is the yield-to maturity, is the time to maturity and is the face
value.
If and are two random variables and and are two constants then:
( + ) = () + ()
() = ()
() = (, )
(, ) = (, )
(, ) =
(, ) = (, )
The solution to the quadratic equation
2 + + = 0
is
12 =

2 4
2

The Modified Duration of a bond, , is given by


=

(1 + )

where is the Macaulay Duration and is the yield-to maturity


The return on a portfolio, , consisting of assets and is given by
= +
where , are the weights allocated to assets A and B and , are the returns
respectively

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