Discounted Cash Flow Applications

CFA level I / Quantitative Methods: Basic Concepts / Discounted Cash Flow Applications

Learning Outcome Statements

1. Net present value (NPV) and internal rate of return (IRR)
a. calculate and interpret the net present value (NPV) and the internal rate of return (IRR) of an investment;

2. NPV rule and IRR rule
b. contrast the NPV rule to the IRR rule, and identify problems associated with the IRR rule;

3. Holding period return (HPR)
c. calculate and interpret a holding period return (total return);

4. Money-weighted and time-weighted rates of return
d. calculate and compare the money-weighted and time-weighted rates of return of a portfolio and evaluate the performance of portfolios based on these measures;

5. Bank discount yield, holding period yield, effective annual yield, and money market yield
e. calculate and interpret the bank discount yield, holding period yield, effective annual yield, and money market yield for US Treasury bills and other money market instruments;
f. convert among holding period yields, money market yields, effective annual yields, and bond equivalent yields.

Discounted Cash Flow Applications: Chapter Test
12 Questions, 18 Minutes