Concept understanding

Really confused on one of the concept How to calculate PV of FRA payoff of 9433.96 discounted for 3 months at the risk free rate of 4% ( Schweser pg 188, book 4) RIght answer = 9433.96 / power(1.04, 0.25) = 9341.91 . Here 1.04 is raised to power of 0.25 I am confused on how to use the calculator: ( converted everthing to monthly) N=3 , I/Y = 4/12, PMT = 0, FV = -9433.96 so PV = ? THis does not yield the same answer… What am I doing wrong? Also why cant I do this : 9433 / (1 + 0.04*3/12) Please help?

You have to do this: 9433/ ((1+.04)^3/12)

To clarify: In the denominator, you are taking the .04 to the .25 power and then adding one Instead, you need to add 1 to the .04 and then take it to the .25 power They aren’t equivalent. Just a little Pretty Please My Dear Aunt Sally (PPMDAS).

What is Pretty Please My Dear Aunt Sally?

Parenthesis, Power, Multiplication, Division, Addition, Subtraction. It tells you the order to work through operations in an equation. However, I learned it as: Please Excuse My Dear Aunt Sally. The “E” for Exponents.

I always found BEDMAS easiest to remember. One word.

Nah they are too hard to remember - SOHCAHTOA is way easier

Schweser pg 188, book 4) should this discount with LIBOR of 0.06 instead of 0.04 (risk free rate). looks like 1st discount using 0.06 and 2nd using 0.04 why?

itfaster Wrote: ------------------------------------------------------- > Schweser pg 188, book 4) > should this discount with LIBOR of 0.06 instead of > 0.04 (risk free rate). > looks like 1st discount using 0.06 and 2nd using > 0.04 why? I have the same question. Sometimes I have to remember it without understanding it. I think LIBOR of 0.06 is the company’s borrowing cost, so the payment is discounted at 0.06 firstly. But I don’t know why it is discounted at risk-free rate again.