Topic 3. Financial Transaction Yield Transaction Yield Types really invested funds at the moment t = 0 really returned funds as the result of a transaction whose term is T time units absolute transaction yield

Financial Transaction Yield Average annual transaction yield is the simple or compound interest ratethat is used to measure the effectiveness of a financial transaction (1) (2) for the simple rate for the compound rate

Tax and Inflation Accounting - initial sum - interest rate - tax rate - interest on the sum - tax amount

Simple rate Compound rate Example When granting a credit for 2 years with an annual compound interest rate of 0.08, the creditor retains the commission fee at the rate of 0.5% of the credit amount. The tax amount on interest is 10%. What is the transaction yield for the creditor? Solution.

Inflation (3) (4),…, price index and inflation rate at a time unit at the time segment

(5) (6) (7) (8)

Example. The expected annual inflation rate of the first two years of the deposit is 3%, and that of the following three is 4%. What minimal annual compound interest rate should the bank offer the client in order that the real annualized gain of the deposit be no less than 8% ? Solution. n = 5 years, = 0.03 = 0.04 yield equation = = 11.9%

Payment Stream and its Yield payment stream yield of payment stream, if

Solution. A promissory note was discounted at rate of 10% 160 days before its maturity (the base annual number is 360 days). At the execution of the transaction a commission fee was retained from the note owner that equaled 0.5% of the principal amount of the note. Find the yield of the transaction. Solution = 4.6% = 5.2% (1.046)360/160 – 1 = 0.106, i.e. 10.6% —, without commission, (1.052)360/160 – 1 = , i.e % — with commission.

Instant Profit