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Mastering Financial Calculations: A step-by-step guide to the mathematics of financial market instruments, Second edition by Bob Steiner

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Appendix 3. A summary of calculation procedures

Notation

The following general notation is used throughout these formulas, unless something different is specifically mentioned:

D

=

discount rate

FV

=

future value, or future cashflow

i

=

interest rate or yield per annum

n

=

number of times per year an interest payment is made

N

=

number of years or number of coupon periods

P

=

price (dirty price for a bond)

PV

=

present value, or cashflow now

r

=

continuously compounded interest rate

R

=

coupon rate paid on a security

year

=

number of days in the conventional year

zk

=

zero-coupon yield for k years

Financial arithmetic basics (Chapter 1)

Effective and nominal rates

If the interest rate with n payments per year is i, the effective rate (equivalent annual rate) i* is:

Similarly:

Continuously ...

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