I’m confused with exhibit 1 given, which rate should i use to calculate PV of quarterly dividend? are they annualized rate or not? According to the answer: PV D1 = (.75) / (1+.005)^90/360 = .7491 PV D2 = (.75) / (1+.005)^180/360 = .7481 what does 0.005 stands for here? 3-months rate for D1 and 6-months rate for D2? If they are annualized rates, why not use 0.5%/4 and 0.5%/2 ? Thanks a lot!
yea 3 month & 6 month. they are not annualized, the q says 3mo & 6mo maturity so just take them as is
i don’t get it, if they are not annualized, why can’t we use them directly? i mean D1 = 0.75/1.005 is enough? adjustment for 90/360 is not necessary? Sorry these stuff confused me badly.
this should clear some of your confusion http://www.analystforum.com/phorums/read.php?12,1259718,1259857#msg-1259857
It’s necessary to adjust them for 90/360 and 180/360 … same concept applies to futures
thanks, mr_moose. My question is not to use 360 or 365, but whether we need to adjust for 90/360 on the exponent at all…if it’s not annualized, why can i just use it by adding 5% to 1? And even if it’s annualized, i can try 1+5/4% instead of (1+5%)^(90/360), right?