finance question - Earth Empires Forum

martian

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7828

Apr 21st 2011, 1:41:42

I used to know this but I forgot
Given duration, a present value factor and an interest rate,
what is the formula to approximate the new present value factor given a new interest rate.
(present value factor = present value/nominal value)

the formula involves ln or something..:P

you are all special in the eyes of fluff
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CrazyMatt

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265

Apr 21st 2011, 1:46:02

aka youre broke

SakitSaPuwit

Member
1108

Apr 21st 2011, 1:46:04

sorry the only reason I read this is because i thought you said fiancée, instead of finance.

but what do i know?
I only play this game for fun!

SakitSaPuwit

Member
1108

Apr 21st 2011, 1:47:04

the one time i actually use a spell checker, and it messes it up!

but what do i know?
I only play this game for fun!

martian

Game Moderator
Mod Boss
7828

Apr 21st 2011, 2:03:04

dammit. I don't spam your requests for math help you fluffheads:P

you are all special in the eyes of fluff
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Chevs

Member
2061

Apr 21st 2011, 2:05:59

KF i found the answer for you its here:

http://tinyurl.com/48b

SOF Head Of Poop
2019-04-03 21:40:26 PS the stinky deyicks (#599) Beryl Houston (#360) LaF 30638A (43783A)
En4cer: Chevs... u would have beaten me by more than 100m

119

Member
145

Apr 21st 2011, 2:13:58

Factors of a Present Value Calculation

The mathematical formula for the discount factor is the reciprocal of 1+ the rate of return. Factors of present value calculation include the contract's term (in years), the interest rate (in %), and the final amount (in $). These three variables determine the initial contribution you'd need to make to meet your final amount. As long as the rate of return stays constant (as with a fixed annuity or cd-type annuity) the final amount will be guaranteed.

The formula for present value is: PV = FV / (1+i)^n.

Dooman

Member
92

Apr 21st 2011, 2:23:44

Mr Insurance Dude, aren't you paid the big bucks to know these mathy things?

Chevs

Member
2061

Apr 21st 2011, 2:35:06

Originally posted by 119:

HAHAHAHAHAHHA

SOF Head Of Poop
2019-04-03 21:40:26 PS the stinky deyicks (#599) Beryl Houston (#360) LaF 30638A (43783A)
En4cer: Chevs... u would have beaten me by more than 100m

H4xOr WaNgEr

Forum Moderator
1932

Apr 21st 2011, 3:05:50

Heh, he was asking for something a lot more complicated than that, 119.

toma

Member
313

Apr 21st 2011, 3:09:25

Originally posted by H4xOr WaNgEr:

Heh, he was asking for something a lot more complicated than that, 119.

It's financial math how can it be complicated.

Originally posted by Slagpit:

Ruining peoples fun for no reason is okay, but ruining it for a reason I disagree with isn't okay. Never change, community.

martian

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7828

Apr 21st 2011, 3:21:02

"PV = FV / (1+i)^n. "
for a lump sum yes. and I knew that and
That's not what I'm asking.

you are all special in the eyes of fluff
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martian

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7828

Apr 21st 2011, 3:22:19

!kb's chevs
:P
and the formula itself is rather short from what I remember.

you are all special in the eyes of fluff
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martian

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7828

Apr 21st 2011, 3:41:07

FFF

you are all special in the eyes of fluff
(|(|
( ._.) -----)-->
(_(' )(' )

RUN IT IS A KILLER BUNNY!!!

H4xOr WaNgEr

Forum Moderator
1932

Apr 21st 2011, 3:48:37

Are you studying for the next exam?

Pontius Pirate

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1907

Apr 21st 2011, 4:16:31

-1 * duration * change in interest rates = %age change in present value

=> (-1)*oldPV*(D/(1+oldIR))*(change in IR) = change in PV
nominal value doesn't change

note the duration in the equation should be the modified duration, not the macauley duration... so if you're given macauley duration as I assumed you were, divide the duration by (1+oldIR) - if not, just use D

something along those lines?

Edited By: Pontius Pirate on Apr 21st 2011, 4:19:39
See Original Post

Originally posted by Cerberus:

This guy is destroying the U.S. Dollars position as the preferred exchange for international trade. The Chinese Ruan is going to replace it soon, then the U.S. will not have control of the IMF

diez

Member
1340

Apr 21st 2011, 4:36:35

H4xOr, by any chance, do you take actuarial exams too? :p

Evolution

Member
669

Apr 21st 2011, 12:23:27

I can't be bothered to look up my finance textbooks.

Not posting on AT as much because Maki/Steeps gave back some of my forums on GHQ. RIP my decade long blog, my blog even had replies from people who are no longer with us :(.

Chevs

Member
2061

Apr 21st 2011, 13:42:50

PP i hope thats not what KF was looking for...otherwise hes just a lazy bum...thats like the fundamental use of duration for approximating price deltas martian should know that..

im still confused as to what hes asking

SOF Head Of Poop
2019-04-03 21:40:26 PS the stinky deyicks (#599) Beryl Houston (#360) LaF 30638A (43783A)
En4cer: Chevs... u would have beaten me by more than 100m

martian

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7828

Apr 21st 2011, 15:05:43

(-1)*oldPV*(D/(1+oldIR))*(change in IR) = change in PV

well to be fair that does sort of work but it really I'm looking for.

Discount factor = PV/nominal value
if I have a duration D and an interest rate i then how does the discount rate change if I change i. I'm looking for a log formula which I can't remember:(.
The above sort of works because if we assume a nominal value of 1 then "PV" in that equation works and you get an answer. The reason why I want to avoid it is I'm looking at changes in i involving 100-200 bps so the above is less than ideal. The one I'm thinking of is closer.

you are all special in the eyes of fluff
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RUN IT IS A KILLER BUNNY!!!

Pontius Pirate

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Apr 21st 2011, 15:14:48

Originally posted by martian:

Hmm can't say I remember anything with a log that would work with the variables you gave.. but the thing is, for large changes (100-200bps) duration doesn't work. Duration by definition assumes a linear relationship between IR and PV whereas like you implied it's not linear. Usually you solve this problem with the convexity adjustment but I can't see how you would calculate convexity with the variables you gave.

But more than likely I'm just forgetting something obvious. Sorry :P

Originally posted by Cerberus:

This guy is destroying the U.S. Dollars position as the preferred exchange for international trade. The Chinese Ruan is going to replace it soon, then the U.S. will not have control of the IMF

Trife

Member
5817

Apr 21st 2011, 15:22:28

.999... = 1

Is the only equation anyone could ever need

Pontius Pirate

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EE Patron
1907

Apr 21st 2011, 15:24:42

i should add for martian that the "present value factor" is not really what your formula should look for incase you're googling or something: the nominal value stays the same so essentially you're just looking for a formula for the change in present value.

i think.

Originally posted by Cerberus:

This guy is destroying the U.S. Dollars position as the preferred exchange for international trade. The Chinese Ruan is going to replace it soon, then the U.S. will not have control of the IMF

martian

Game Moderator
Mod Boss
7828

Apr 21st 2011, 15:43:39

PP: yeah well it's the same thing since "present value factor" is really the same as the present value of something with nominal value with $1.
Duration works well for small changes in interest rates. Duration + convexity is another choice I"m entertaining but given that this is not a bond (or something bond-like) that I'm dealing with I suspect that this won't be a huge improvement because of the nature of the cashflows themselves. I might give up and see how well it works with duration/convexity but it's really bugging me now.
The log thing works better in certain situations. I need to find my math-finance book I think.

you are all special in the eyes of fluff
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( ._.) -----)-->
(_(' )(' )

RUN IT IS A KILLER BUNNY!!!

Chevs

Member
2061

Apr 21st 2011, 16:28:57

martian, email david saunders hes a prof at waterloo i just had him for actsc 445 ALM

SOF Head Of Poop
2019-04-03 21:40:26 PS the stinky deyicks (#599) Beryl Houston (#360) LaF 30638A (43783A)
En4cer: Chevs... u would have beaten me by more than 100m

Chevs

Member
2061

Apr 21st 2011, 16:29:09

or i can do it for you if you really need it, but like pp said, duration is a bad approximation for larges changes in i

SOF Head Of Poop
2019-04-03 21:40:26 PS the stinky deyicks (#599) Beryl Houston (#360) LaF 30638A (43783A)
En4cer: Chevs... u would have beaten me by more than 100m

H4xOr WaNgEr

Forum Moderator
1932

Apr 21st 2011, 16:57:32

no I don't take the actuarial exams, I'm only an economist

martian

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Mod Boss
7828

Apr 21st 2011, 18:05:40

Chevs: this formula (in terms of derivation) is more advanced than what you would have learned in actsci 445. (I did no studying for that course and got 91% btw:P). The funny thing is that it really depends what you are trying to do. When you start doing stress tests u realize quickly what the issues potentially can be with that from an P&C insurance standpoint (the duration of my liabilities can change dramatically under some circumstances). But meh:P

Maybe you can throw a curve-ball at the prof and ask him. I'm *sure* he would have seen it somewhere.. but does he remember:P

btw I know the duration/convexity formulas mentioned above and am trying not to go that route:P.

Edited By: martian on Apr 21st 2011, 18:08:59
See Original Post

you are all special in the eyes of fluff
(|(|
( ._.) -----)-->
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RUN IT IS A KILLER BUNNY!!!

Chevs

Member
2061

Apr 21st 2011, 18:07:18

yeah i realize that it wasn't taught but the prof would know or else hes a bozo

SOF Head Of Poop
2019-04-03 21:40:26 PS the stinky deyicks (#599) Beryl Houston (#360) LaF 30638A (43783A)
En4cer: Chevs... u would have beaten me by more than 100m

martian

Game Moderator
Mod Boss
7828

Apr 21st 2011, 18:10:03

yeah I forgot to add that. Thanks for the offer:P Let me see if I can find it in my math-finance textbook first (if I can find it).

you are all special in the eyes of fluff
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RUN IT IS A KILLER BUNNY!!!

Sifos

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Apr 21st 2011, 22:05:57

Imaginary Numbers
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Evolution

Member
669

Apr 21st 2011, 23:14:31

I could ask my actuarial friends, I have far too many of those.
though a lot of them had difficulty finding directly related jobs if they didn't have a distinction average. Most ended up working in finance.

Not posting on AT as much because Maki/Steeps gave back some of my forums on GHQ. RIP my decade long blog, my blog even had replies from people who are no longer with us :(.

martian

Game Moderator
Mod Boss
7828

Apr 22nd 2011, 0:49:37

*is an actuary in a directly related job*

:P

you are all special in the eyes of fluff
(|(|
( ._.) -----)-->
(_(' )(' )

RUN IT IS A KILLER BUNNY!!!

Helmet

Member
1341

Apr 22nd 2011, 1:09:16

What's the probability that if you ask 2 actuaries you'll get the answer you need? :P

Alin is a cheater.

http://i1090.photobucket.com/...ainoftse/alincheating.png

oats

Member
648

Apr 22nd 2011, 1:54:31

You can make one up! Think harder!

Navisis

Member
122

Apr 27th 2011, 2:40:13

Originally posted by Helmet:

What's the probability that if you ask 2 actuaries you'll get the answer you need? :P

They answer is zero chance to get the answer you need, but 100% chance you will end up paying more for car insurance and get told you have an underfunded pension liability.

Evolution

Member
669

Apr 27th 2011, 8:41:48

I agree with iScode! what has been seen can not be unseen.

*pokes own eyes out and chases Navisis around*

Not posting on AT as much because Maki/Steeps gave back some of my forums on GHQ. RIP my decade long blog, my blog even had replies from people who are no longer with us :(.