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LIBOR Transition Faqs ‘Big Bang’ CCP Switch Over
RED = Final File Size/Bleed Line BLACK = Page Size/Trim Line MAGENTA = Margin/Safe Art Boundary NOT A PRODUCT OF BARCLAYS RESEARCH LIBOR Transition FAQs ‘Big bang’ CCP switch over 1. When will CCPs switch their rates for discounting 2. €STR Switch Over to new risk-free rates (RFRs)? What is the ‘big bang’ 2a. What are the mechanics for the cash adjustment switch over? exchange? Why is this necessary? As part of global industry efforts around benchmark reform, Each CCP will perform a valuation using EONIA and then run most systemic Central Clearing Counterparties (CCPs) are the same valuation by switching to €STR. The switch to €STR expected to switch Price Aligned Interest (PAI) and discounting discounting will lead to a change in the net present value of EUR on all cleared EUR-denominated products to €STR in July 2020, denominated trades across all CCPs. As a result, a mandatory and for USD-denominated derivatives to SOFR in October 2020. cash compensation mechanism will be used by the CCPs to 1a. €STR switch over: weekend of 25/26 July 2020 counter this change in value so that individual participants will experience almost no ‘net’ changes, implemented through a one As the momentum of benchmark interest rate reform continues off payment. This requirement is due to the fact portfolios are in Europe, while EURIBOR has no clear end date, the publishing switching from EONIA to €STR flat (no spread), however there of EONIA will be discontinued from 3 January 2022. Its is a fixed spread between EONIA and €STR (i.e. -
Preqin Special Report: Subscription Credit Facilities
PREQIN June 2019 SPECIAL REPORT: SUBSCRIPTION CREDIT FACILITIES PREQIN SPECIAL REPORT; SUBSCRIPTION CREDIT FACILITIES Contents 3 CEO’s Foreword 4 Subscription Credit Facility Usage in Private Capital 7 Subscription Lines of Credit and LP-GP Alignment: ILPA’s Recommendations - ILPA 8 Are Subscription Facilities Oversubscribed? - Fitch Ratings 10 Subscription Finance Market - McGuireWoods LLP Download the Data Pack All of the data presented in this report is available to download in Excel format: www.preqin.com/SCF19 As with all our reports, we welcome any feedback you may have. To get in touch, please email us at: [email protected] 2 CEO's Foreword Subscription credit facilities: angels or demons? A legitimate and valuable tool for managing liquidity and streamlining transactions in a competitive market, or a cynical ploy for massaging IRRs? The debate continues in private equity and wider private capital circles. As is often the case, historical perspective is helpful. Private capital operates in a dynamic and competitive environment, as GPs and LPs strive to achieve superior net returns, through good times and bad. Completing deals and generating the positive returns that LPs Mark O’Hare expect has never been more challenging than it is CEO, Preqin today, given the availability of capital and the appetite for attractive assets in the market. Innovation and answers: transparent data, combined with thoughtful dynamism have long been an integral aspect of the communication and debate. private capital industry’s arsenal of tools, comprised of alignment of interest; close attention to operational Preqin’s raison d’être is to support and serve the excellence and value add; over-allocation in order to alternative assets industry with the best available data. -
IRR: a Blind Guide
American Journal Of Business Education – July/August 2012 Volume 5, Number 4 IRR: A Blind Guide Herbert Kierulff, Seattle Pacific University, USA ABSTRACT Over the past 60 years the internal rate of return (IRR) has become a major tool in investment evaluation. Many executives prefer it to net present value (NPV), presumably because they can more easily comprehend a percentage measure. This article demonstrates that, except in the rare case of an investment that is followed by a single cash return, IRR suffers from a definitional quandary. Is it an intrinsic measure, defined only in terms of itself, or is it defined by the efforts of active investors? Additionally, the article explains significant problems with the measure - reinvestment issues, multiple IRRs, timing problems, problems of choice among unequal investment opportunities, and practical difficulties with multiple discount rates. IRR is a blind guide because its definition is in doubt and because of its many practical problems. Keywords: IRR; PV; NPV; Internal Rate of Return; Return on Investment; Discount Rate INTRODUCTION he internal rates of return (IRR) and net present value (NPV) have become the primary tools of investment evaluation in the last 60 years. Ryan and Ryan (2002) found that 76% of the Fortune 1000 companies use IRR 75-100% of the time. Earlier studies (Burns & Walker, 1987; Gitman & TForrester, 1977) indicate a preference for IRR over NPV, and a propensity to use both methods over others such as payback and return on funds employed. The researchers hypothesize that executives are more comfortable with a percentage (IRR) than a number (NPV). -
Internal Value of Shares
Feasibility assessment of expansion options for a fish feed factory in Iceland Ágúst Freyr Dansson Thesis of 30 ECTS credits Master of Science in Engineering Management June 2015 Feasibility assessment of expansion options for a fish feed factory in Iceland Ágúst Freyr Dansson Thesis of 30 ECTS credits submitted to the School of Science and Engineering at Reykjavík University in partial fulfillment of the requirements for the degree of Master of Science in Engineering Management June 2015 Supervisor(s): Dr. Páll Jensson Professor, Reykjavík University, Iceland Examiner(s): Dr. Jón Árnason Matís ii Abstract Fish farming in Iceland has been growing steadily since 2008. With better farming technologies it is becoming increasingly profitable and demand for feed is increasing. Domestic fish feed factories will not be capable of producing enough feed to supply the Icelandic market in the coming years if this trend continues. Old equipment also prevents optimal fat content in feed production. A new factory or upgrade is necessary for Laxá to stay competitive. This paper presents a feasibility model for comparison of a new 50.000 ton fish feed factory versus upgrading existing facilities at Laxá to supply increased demand. Risk analysis and inventory optimization are also presented for both options and optimal location is determined for a new factory. Both investment options are feasible at the end of the planning horizon. A new factory has 18% IRR and NPV of 725 M ISK. A factory upgrade returns 25% IRR and NPV of 231 M ISK. With no clear favorite the selection could ultimately depend on the risk attitude of Laxá executives and project investors. -
“We Have Met the Enemy… and He Is Us”
“WE HAVE MET THE ENEMY… AND HE IS US” Lessons from Twenty Years of the Kauffman Foundation’s Investments in Venture Capital Funds and The Triumph of Hope over Experience May 2012 0 Electronic copy available at: http://ssrn.com/abstract=2053258 “WE HAVE MET THE ENEMY… AND HE IS US” Lessons from Twenty Years of the Kauffman Foundation’s Investments in Venture Capital Funds and The Triumph of Hope over Experience May 2012 Authors: Diane Mulcahy Director of Private Equity, Ewing Marion Kauffman Foundation Bill Weeks Quantitative Director, Ewing Marion Kauffman Foundation Harold S. Bradley Chief Investment Officer, Ewing Marion Kauffman Foundation © 2012 by the Ewing Marion Kauffman Foundation. All rights reserved. 1 Electronic copy available at: http://ssrn.com/abstract=2053258 ACKNOWLEDGEMENTS We thank Benno Schmidt, interim CEO of the Kauffman Foundation, and our Investment Committee, for their support of our detailed analysis and publication of the Foundation’s historic venture capital portfolio and investing experience. Kauffman’s Quantitative Director, Bill Weeks, contributed exceptional analytic work and key insights about the performance of our portfolio. We also thank our colleagues and readers Paul Kedrosky, Robert Litan, Mary McLean, Brent Merfen, and Dane Stangler for their valuable input. We also are grateful for the more than thirty venture capitalists and institutional investors that we interviewed, who shared their candid views and perspectives on these topics. A NOTE ON CONFIDENTIALITY Despite the strong brand recognition of many of the partnerships in which we’ve invested, we are prevented from providing specifics in this paper due to confidentiality provisions to which we agreed at the time of our investment. -
No Arbitrage Pricing and the Term Structure of Interest Rates
No Arbitrage Pricing and the Term Structure of Interest Rates by Thomas Gustavsson Economic Studies 1992:2 Department of Economics Uppsala University Originally published as ISBN 91-87268-11-6 and ISSN 0283-7668 Acknowledgement I would like to thank my thesis advisor professor Peter Englund for helping me to complete this project. I could not have done it without the expert advice of Ingemar Kaj from the Department of Mathematics at Uppsala University. I am also grateful to David Heath of Cornell University for reading and discussing an early version of this manuscript. Repeated conversations with Martin Kulldorff and Hans Dill´en,both Uppsala University, and Rainer Sch¨obel, T¨ubingen,have also been most helpful. The usual disclaimer applies. Financial support for this project was received from Bo Jonas Sj¨onanders Minnesfond and Bankforskningsinstitutet. Special thanks to professors Sven- Erik Johansson, Nils Hakansson, Claes-Henric Siven and Erik Dahm´enfor their support. Uppsala May 1992 Abstract This dissertation provides an introduction to the concept of no arbitrage pricing and probability measures. In complete markets prices are arbitrage-free if and only if there exists an equivalent probability measure under which all asset prices are martingales. This is only a slight generalization of the classical fair game hypothesis. The most important limitation of this approach is the requirement of free and public information. Also in order to apply the martingale repre- sentation theorem we have to limit our attention to stochastic processes that are generated by Wiener or Poisson processes. While this excludes branching it does include diffusion processes with stochastic variances. -
USING a TEXAS INSTRUMENTS FINANCIAL CALCULATOR FV Or PV Calculations: Ordinary Annuity Calculations: Annuity Due
USING A TEXAS INSTRUMENTS FINANCIAL CALCULATOR FV or PV Calculations: 1) Type in the present value (PV) or future value (FV) amount and then press the PV or FV button. 2) Type the interest rate as a percent (if the interest rate is 8% then type “8”) then press the interest rate (I/Y) button. If interest is compounded semi-annually, quarterly, etc., make sure to divide the interest rate by the number of periods. 3) Type the number of periods and then press the period (N) button. If interest is compounded semi-annually, quarterly, etc., make sure to multiply the years by the number of periods in one year. 4) Once those elements have been entered, press the compute (CPT) button and then the FV or PV button, depending on what you are calculating. If both present value and future value are known, they can be used to find the interest rate or number of periods. Enter all known information and press CPT and whichever value is desired. When entering both present value and future value, they must have opposite signs. Ordinary Annuity Calculations: 1) Press the 2nd button, then the FV button in order to clear out the TVM registers (CLR TVM). 2) Type the equal and consecutive payment amount and then press the payment (PMT) button. 3) Type the number of payments and then press the period (N) button. 4) Type the interest rate as a percent (if the interest rate is 8% then type “8”) then press the interest rate button (I/Y). 5) Press the compute (CPT) button and then either the present value (PV) or the future value (FV) button depending on what you want to calculate. -
Venture Capital and the Finance of Innovation, Second Edition
This page intentionally left blank VENTURE CAPITAL & THE FINANCE OF INNOVATION This page intentionally left blank VENTURE CAPITAL & THE FINANCE OF INNOVATION SECOND EDITION ANDREW METRICK Yale School of Management AYAKO YASUDA Graduate School of Management, UC Davis John Wiley & Sons, Inc. EDITOR Lacey Vitetta PROJECT EDITOR Jennifer Manias SENIOR EDITORIAL ASSISTANT Emily McGee MARKETING MANAGER Diane Mars DESIGNER RDC Publishing Group Sdn Bhd PRODUCTION MANAGER Janis Soo SENIOR PRODUCTION EDITOR Joyce Poh This book was set in Times Roman by MPS Limited and printed and bound by Courier Westford. The cover was printed by Courier Westford. This book is printed on acid free paper. Copyright 2011, 2007 John Wiley & Sons, Inc. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning or otherwise, except as permitted under Sections 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc. 222 Rosewood Drive, Danvers, MA 01923, website www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030-5774, (201)748-6011, fax (201)748-6008, website http://www.wiley.com/go/permissions. Evaluation copies are provided to qualified academics and professionals for review purposes only, for use in their courses during the next academic year. These copies are licensed and may not be sold or transferred to a third party. -
Lecture 2 More on Interest Rates
Lecture 2 More on interest rates Lecture 2 1 / 25 Calculating present values is also known as discounting, and 1 d = k (1 + r)k is the k-year discount factor. Discount factors (1) We have seen that a cash flow xk occuring at time k has present value equal to x 1 PV = k = x · : (1 + r)k k (1 + r)k Lecture 2 2 / 25 Discount factors (1) We have seen that a cash flow xk occuring at time k has present value equal to x 1 PV = k = x · : (1 + r)k k (1 + r)k Calculating present values is also known as discounting, and 1 d = k (1 + r)k is the k-year discount factor. Lecture 2 2 / 25 Discount factors (2) The m-period and continuously compounded discount factors are given by 1 d = k (1 + r=m)k and −rt dt = e respectively. Lecture 2 3 / 25 Theorem (The main theorem on present values) If all cash flows are discounted using the same constant interest rate r, then two cash flow streams are equivalent if they have the same present value. Equivalent streams of cash flows We say that two streams of cash flows are equivalent if we can use the cash flows from one to create the other, and vice versa. Lecture 2 4 / 25 Equivalent streams of cash flows We say that two streams of cash flows are equivalent if we can use the cash flows from one to create the other, and vice versa. Theorem (The main theorem on present values) If all cash flows are discounted using the same constant interest rate r, then two cash flow streams are equivalent if they have the same present value. -
Fabozzi Course.Pdf
Asset Valuation Debt Investments: Analysis and Valuation Joel M. Shulman, Ph.D, CFA Study Session # 15 – Level I CFA CANDIDATE READINGS: Fixed Income Analysis for the Chartered Financial Analyst Program: Level I and II Readings, Frank J. Fabozzi (Frank J. Fabozzi Associates, 2000) “Introduction to the Valuation of Fixed Income Securities,” Ch. 5 “Yield Measures, Spot Rates, and Forward Rates,” Ch. 6 “Introduction to Measurement of Interest Rate Risk,” Ch. 7 © 2002 Shulman Review/The Princeton Review Fixed Income Valuation 2 Learning Outcome Statements Introduction to the Valuation of Fixed Income Securities Chapter 5, Fabozzi The candidate should be able to a) Describe the fundamental principles of bond valuation; b) Explain the three steps in the valuation process; c) Explain what is meant by a bond’s cash flow; d) Discuss the difficulties of estimating the expected cash flows for some types of bonds and identify the bonds for which estimating the expected cash flows is difficult; e) Compute the value of a bond, given the expected cash flows and the appropriate discount rates; f) Explain how the value of a bond changes if the discount rate increases or decreases and compute the change in value that is attributable to the rate change; g) Explain how the price of a bond changes as the bond approaches its maturity date and compute the change in value that is attributable to the passage of time; h) Compute the value of a zero-coupon bond; i) Compute the dirty price of a bond, accrued interest, and clean price of a bond that is between coupon -
Financial Internal Rate of Return (FIRR)1 -Revisited-
Financial Internal Rate of Return (FIRR)1 -Revisited- 1. Introduction The FIRR is an indicator to measure the financial return on investment of an income generation project and is used to make the investment decision. The general approach to calculating the FIRR has long been discussed and seems well-established in such a way that the cash flow analysis induces uniformly the FIRR. While this may hold true, a closer look at the FIRR from a different investor’s point of view can result in a different implication for the FIRR. This is the very issue which we deal with in this paper. 2. Definition of FIRR The FIRR is obtained by equating the present value of investment costs ( as cash out-flows ) and the present value of net incomes ( as cash in-flows ). This can be shown by the following equality. I1 I2 Im B1 B2 Bm I0 + ――― + ――― + - - - + ――― = ――― + ――― + - - - + ――― (1 + r)1 (1 + r)2 (1 + r)m (1 + r)1 (1 + r)2 (1 + r)m namely, m In m Bn ∑ = ∑ n n n=0 (1+r) n=1 (1+r) where; I0 is the initial investment costs in the year 0 ( the first year during which the project is constructed ) and I1 ~ Im are the additional investment costs for maintenance and rehabilitation for the entire project life period from year 1 ( the second year ) to year m. _____________________________________________________________________________________________________ 1. This paper is a revised version of the original paper prepared by Mr. Koji Fujimoto ( Chief Representative of the OECF Jakarta Office ) in collaboration with Mr. Kazuhiro Suzuki ( C.P.A.,Chuo Audit Corporation, Japan ) as an internal office document in October, 1994 for the former Japanese ODA institution, the Overseas Economic Cooperation Fund of Japan ( OECF ). -
Executive Summary of Finance 430 Professor Vissing-Jørgensen Finance 430-62/63/64, Winter 2011
Executive Summary of Finance 430 Professor Vissing-Jørgensen Finance 430-62/63/64, Winter 2011 Weekly Topics: 1. Present and Future Values, Annuities and Perpetuities 2. More on NPV 3. Capital Budgeting 4. Stock Valuation 5. Bond Valuation and the Yield Curve 6. Introduction to Risk – Understanding Diversification 7. Optimal Portfolio Choice 8. The CAPM 9. Capital Budgeting Under Uncertainty 10. Market Efficiency Summary of Week 1: Present Value Formulas 1. Present Value: Present value of a single cash flow received n periods from now: 1 PV = C × . (1 + r)n 2. Future Value: Future value of a single cash flow invested for n periods: FV = C × (1 + r)n. C 3. Perpetuity: Present value of a perpetuity, PV = r . C 4. Growing Perpetuity: Present value of a constant growth perpetuity, PV = r−g . 5. Annuity: Present value of an annuity paying C at the end of each of n periods 1 C − n PV = r 1 (1+r) . Future value of an annuity paying C at the end of each of n periods C 1 (1 + r)n − 1 FV = (1 + r)n × PV =(1+r)n 1 − = C × . r (1 + r)n r 6. Growing Annuity: Present value of a growing annuity 1+ 1 − g n − [1 ( 1+ ) ]ifr = g PV = C × r g r n/(1 + r)ifr = g. Future value of growing annuity 1 n − n − [(1 + r) (1 + g) ]ifr = g n × × r g FV = (1 + r) PV = C −1 n(1 + r)n if r = g. 7. Excel Functions for Annuities: PV, PMT, FV, NPER Other Excel functions: SOLVER.