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    What Do We Want To Replicate?: - PV (FV) FV/ (1+y)

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    kanye
    This document discusses replicating a coupon stream and large final payment using perpetuities. It involves replicating one coupon stream from period 1 to T, a large final payment FV at time T, and calculating the present value of the coupon stream as the difference in present value between a perpetuity starting at time 1 and one starting at time T+1.

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    What Do We Want To Replicate?: - PV (FV) FV/ (1+y)

    Uploaded by

    kanye
    9 views1 page
    This document discusses replicating a coupon stream and large final payment using perpetuities. It involves replicating one coupon stream from period 1 to T, a large final payment FV at time T, and calculating the present value of the coupon stream as the difference in present value between a perpetuity starting at time 1 and one starting at time T+1.

    Original Description:

    Lecture 1(1).33

    Original Title

    Lecture 1(1).33

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    This document discusses replicating a coupon stream and large final payment using perpetuities. It involves replicating one coupon stream from period 1 to T, a large final payment FV at time T, and calculating the present value of the coupon stream as the difference in present value between a perpetuity starting at time 1 and one starting at time T+1.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as pdf or txt
    9 views1 page

    What Do We Want To Replicate?: - PV (FV) FV/ (1+y)

    Uploaded by

    kanye
    This document discusses replicating a coupon stream and large final payment using perpetuities. It involves replicating one coupon stream from period 1 to T, a large final payment FV at time T, and calculating the present value of the coupon stream as the difference in present value between a perpetuity starting at time 1 and one starting at time T+1.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as pdf or txt
    of 1

    What do we want to replicate?

    One coupon stream (of c) from 1 to T


    One large payment (of FV) at T
    The present value of the FV is easy
    PV(FV) = FV/(1+y)T

    The coupon stream, CS, can be viewed as the


    difference between two perpetuities:
    One perpetuity starting at time 1, X1
    One perpetuity starting at time T+1, X2

    Its PV is the difference in the PV of X1 and X2


    PV(CS) = PV(X1) - PV(X2)

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