Page 9 - Microsoft Word - 00 P1 IW Prelims.docx

Advanced Financial Management

Purchasing power parity and interest rate parity
1 + h
c
S = S × 1 + h
1
0
b
1 + i
c
F = S × 1 + i
0
0
b

Modified Internal Rate of Return

PV R 1
MIRR = 1 + r – 1
e
PV I n

The Black-Scholes option pricing model

–rt
c = P N d – P N d e
2
e
a
1

Where:
2
1n P /P + r + 0.5s t
a
e
d =
1
s√t
d = d – s√t
1
2

The put call parity relationship

–rt
p = c – P + P e
a
e

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