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elearning > Present value

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Learn about the following:

The time value of money. How financial products can be split into cash flows. How discount factors are used. How present value is used in pricing and valuation. Why valuations change. What causes interest rates to change. How traders can profit from their expectations.

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Course Summary

Present value menuPresent value cash flowsPresent value rates

Present value whyPresent value affectPresent value risk

  • 45 minutes
  • 7 question multiple choice test
  • The time value of money
  • How financial products can be split into cash flows
  • How discount factors are used
  • How present value is used in pricing and valuation
  • Why valuations change
  • What causes interest rates to change
  • How traders can profit from their expectations

Present Value - the details

1. Present value

  • A simple example
  • Financial products as cash flows
  • Discount factors
  • Discounting example
  • Net present value

2. Deal pricing and valuation

  • Why deal value is important
  • Application to a trade, swap example
  • The breakeven price
  • Dealer’s profitability
  • Mark-to-market valuations
  • Independence

3. How trade values change

  • Why changes in interest rates affect value, example
  • What this means for fixed income securities
  • How dealers adjust risk in anticipation of interest rate changes

4. Why do interest rates change?

  • How supply and demand for money is influenced by central banks

5. Summary

6. Test

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