imported>Doug Williamson |
imported>Doug Williamson |
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| __NOTOC__
| | A type of instrument that is a hybrid between debt and equity. |
| 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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| ==Example 1== | | == See also == |
| GBP 1 million is borrowed or invested.
| | * [[Debt]] |
| | * [[Equity]] |
| | * [[Hybrid]] |
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| GBP 1.03 million is repayable at the end of the period.
| | [[Category:The_business_context]] |
| | | [[Category:Corporate_finance]] |
| | | [[Category:Investment]] |
| The periodic yield (r) is:
| | [[Category:Long_term_funding]] |
| | | [[Category:Identify_and_assess_risks]] |
| r = (End amount / start amount) - 1
| | [[Category:Manage_risks]] |
| | | [[Category:Risk_frameworks]] |
| ''or''
| | [[Category:Risk_reporting]] |
| | | [[Category:Financial_products_and_markets]] |
| r = (End / Start) -1
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| = (1.03 / 1) - 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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| (End / Start) - 1
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| = (1.00 / 0.97) - 1
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| = 0.030928
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| = '''3.0928%'''
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| ''Check:''
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| 0.97 x 1.030928 = 1.00.
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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 = (End / Start) - 1
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| ''Rearranging this relationship:''
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| 1 + r = End / Start
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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 = (End / Start) - 1
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| ''Rearranging this relationship:''
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| 1 + r = End / Start
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| Start = End / (1 + r)
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| ''Substitute the given data into this relationship:''
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| Start = GBP 1.00m / (1 + 0.030928)
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| = '''GBP 0.97m'''
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| ''Check:''
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| 0.97 x 1.030928 = 1.00, as expected.
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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]]
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| *[[Yield]]
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