Subject category:
Finance, Accounting and Control
Published by:
Centre for Islamic Banking and Finance
Length: 32 pages
Data source: Generalised experience
Abstract
Part one of this two-part note applies the mathematics of compounding and discounting to determine the present values of financial instruments, as applied to bonds. Part two examines the factors affecting the volatility of bonds and describes how this volatilty can be calculated and controlled. Since the future cash flows of bonds are known the application of net present value techniques to bond pricing is fairly straightforward. The uncertainty of future cash flows makes the pricing of stocks applying net present values more difficult to apply.
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Abstract
Part one of this two-part note applies the mathematics of compounding and discounting to determine the present values of financial instruments, as applied to bonds. Part two examines the factors affecting the volatility of bonds and describes how this volatilty can be calculated and controlled. Since the future cash flows of bonds are known the application of net present value techniques to bond pricing is fairly straightforward. The uncertainty of future cash flows makes the pricing of stocks applying net present values more difficult to apply.