High-yield · appears on essentially every sitting
Must know
- EAR = (1 + periodic rate)^m − 1
- FV = PV(1 + r)^n · PV = FV ÷ (1 + r)^n
- Required return = real risk-free + inflation + risk premia
Decision rule
Match the compounding frequency of the rate to the cash flows before you discount anything.
Trap — Quoting the stated annual rate where the exam wants the effective annual rate (EAR).