imported>Doug Williamson |
imported>Doug Williamson |
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| __NOTOC__
| | The evaluation and selection of projects which are most likely to maximise shareholders' wealth. |
| Periodic yield is a rate of return - or cost of borrowing - expressed as the proportion by which the amount at the end of the period exceeds the amount at the start.
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| | ''Also known as Project appraisal.'' |
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| ====Example 1====
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| GBP 1 million is borrowed or invested.
| | == See also == |
| | | * [[Project appraisal]] |
| GBP 1.03 million is repayable at the end of the period.
| | * [[Analysis paralysis]] |
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| The periodic yield (r) is:
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| r = (End amount / start amount) - 1
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| Which can also be expressed as:
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| r = (End / Start) - 1
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| ''or''
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| r = <math>\frac{End}{Start}</math> - 1
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| = <math>\frac{1.03}{1}</math> - 1
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| = 0.03
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| = '''3%'''
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| ====Example 2====
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| GBP 0.97 million is borrowed or invested.
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| GBP 1.00 million is repayable at the end of the period.
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| The periodic yield (r) is:
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| r = <math>\frac{End}{Start}</math> - 1
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| = <math>\frac{1.00}{0.97}</math> - 1
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| = 0.030928
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| = '''3.0928%'''
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| ''Check:''
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| Amount at end = 0.97 x 1.030928 = 1.00, as expected.
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| ====Example 3====
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| GBP 0.97 million is invested.
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| The periodic yield is 3.0928%.
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| Calculate the amount repayable at the end of the period.
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| '''''Solution'''''
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| The periodic yield (r) is defined as:
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| r = <math>\frac{End}{Start}</math> - 1
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| ''Rearranging this relationship:''
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| 1 + r = <math>\frac{End}{Start}</math>
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| End = Start x (1 + r)
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| ''Substituting the given information into this relationship:''
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| End = GBP 0.97m x (1 + 0.030928)
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| = '''GBP 1.00m'''
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| ====Example 4====
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| An investment will pay out a single amount of GBP 1.00m at its final maturity after one period.
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| The periodic yield is 3.0928%.
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| Calculate the amount invested at the start of the period.
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| '''''Solution'''''
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| As before, the periodic yield (r) is defined as:
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| r = <math>\frac{End}{Start}</math> - 1
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| ''Rearranging this relationship:''
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| 1 + r = <math>\frac{End}{Start}</math>
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| Start = <math>\frac{End}{(1 + r)}</math>
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| ''Substitute the given data into this relationship:''
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| Start = <math>\frac{1.00}{(1 + 0.030928)}</math>
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| = '''GBP 0.97m'''
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| ''Check:''
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| Amount at start = 0.97 x 1.030928 = 1.00, as expected.
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| ====Effective annual rate====
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| The periodic yield (r) is related to the [[effective annual rate]] (EAR), and each can be calculated from the other.
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| ==See also== | |
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| *[[Effective annual rate]]
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| *[[Discount rate]]
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| *[[Nominal annual rate]]
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| *[[Periodic discount rate]] | |
| *[[Yield]] | |
