Page 9 - AFM Integrated Workbook STUDENT S18-J19
P. 9

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
                                                    a
                                                                e
                                                         1

                                                         Where:
                                                                         2
                                                   ln P /P   +  r + 0.5s  t
                                                           e
                                                        a
                                              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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