Questions tagged [finance]

Finance describes the management, creation and study of money, banking, credit, investments, assets and liabilities that make up financial systems, as well as the study of those financial instruments.

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Chan Park - Fundamentals of Engineering economics - 1st edition - Chapter 5 - Present value - 5.8

hope I could ask some help around here. I'm working with Chan S Park book Fundamentals of Engineering Economics, 1st edition. I'm in the problem 5.8, page 171. Which states: ``Your firm is considering ...
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J Curve and DD Schedule in the Short Run (International Finance)

Assume that the J-curve is true. What would the DD curve look like during the early period of the J-curve (where the value effect dominates)? What would the effect of temporary changes in monetary ...
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Implications for the economics literature of possible mistakes in Black-Scholes-Merton option pricing?

If this preprint (which is discussed here on QSE) is correct in showing that there are mathematical mistakes in the Black-Scholes-Merton option pricing framework, are there strands of the economic ...
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Logic behind uncovered interest rate parity?

So I am having trouble understanding the UIP equilibrium condition. Namely, according to UIP, when the home country has a higher interest rate than the foreign country, its currency will depreciate ...
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Why is the portfolio weight of the risk-free asset capped at 1?

I am reading Investment Science by David Luenberger, and in it he creates a portfolio with a risk-free asset and a risky asset. α is the weight of the risk-free asset, and he sets α ≤ 1. Why is that? ...
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Future value of a "future" investment

Consider the following well-known simple exercise : You have a loan outstanding. It requires making three annual payments at the end of the next three years of $1,000 each. Your bank has offered to ...
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Why do the PV and FV formulas (in Excel, at least) use slightly different geometric series?

With geometric series, I understand that, broadly, you can sum from $1$ to $n$, or from $0$ to $n-1$. Let $r=0.03, p=\\\$10, n = 10$. $\sum_{j=s}^{j=s+n-1}{pa^j}=\frac{p\left(a^{n}-1\right)a^s}{a-1}$ ...
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Are all services provided by the financial sector of same utility in the end and reasonable priced?

I've just found a random single statement about the overall money going into financial services: With global GDP expected to reach $93 trillion in the same year, that would mean that financial ...
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Transparent Fractional-reserve banking as an alternative to the current system

I come from a layman perspective, but I've been trying to understand macroeconomics and finance. Currently I'm struggling with the current topic. Here I'm not worried about the system transition just ...
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131 views

World Stock Markets that went up in 2008

We all know that the US stock market(s) collapsed in price in 2008, see https://en.wikipedia.org/wiki/United_States_bear_market_of_2007%E2%80%9309. I was wondering what countries' stock markets went ...
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Real debt burden

Many economists believe real interest payments-to-GDP is a superior measure of debt service burden than nominal interest payments-to-GDP. My question is why we divide real interest payments by nominal ...
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Does the near-zero value of Fannie and Freddie shares indicate the validity of the Discount Dividend Model?

The Discount Dividend Model posits that the value of equities is equal to the discounted value of future dividend payments of a firm; for a firm that doesn't pay a dividend, you presume that they are ...
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How much of a bond do the market makers typically hold?

Market makers facilitate a bond issuance by providing somewhere to both buy and sell the bonds of a bond issuance. I'm trying to understand how the market makers (i.e. the security underwriters such ...
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1 answer
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Does the discounted dividend model assume a stock underperforms the risk-free rate?

I'm trying to understand intuitively why the stock market as a whole has outperforms the risk-free rate over time. I started by looking at the discounted dividend model which is one of the few things ...
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Macro papers that an undergrad would be able to replicate

I'm writing my bachelor's thesis this spring, and would like to do it by replicating a modern empirical paper in either macro or finance. I've tried to find a paper by skimming through renowned ...
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Cash flow of a loan (perspective of a bank)

if you receive a loan from a bank, how does the cash flow of the bank look like? I found the following: https://fincomplete.com/ratgeber/artikel/wie-berechnet-die-bank-meine-kreditzinsen-2 (...
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Data analysis with GARCH modeling

I'm currently analyzing the relationship between stock, bonds, and real estate returns in Germany. I've gathered my data and am planning on estimating this equation: $\sigma_t = \beta_0 + \beta_1 R_{...
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Fake long-term deposits

Story#1 Say banks have two saving options for you: one-year option or month-by-month flex option. Say the flex option give a annualized rate of 2 percent, and the one-year option gives 5 percent (...
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1 answer
151 views

Why is the Modigliani-Miller theorem logical?

Quoting this SE question, who put it nicely, the M&M theorem basically states that: ...in a no-frictions world, two identical firms have the same enterprise value, regardless of their financial ...
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Why is eurodollar future so popular

It's well-know that eurodollar futures contracts are the most liquid contracts in the world. Traders use them to express views on interest rates or hedge interest rate risks. My questions is why are ...
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Trouble Understanding Government's Financial Databases

What does the code field mean in the state of Illinois's financial data?
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2 answers
540 views

Correlation between nominal bond returns and growth

I read the following passage and the bolded section has me confused: In theory, assets earn a low (or negative) risk premium if they tend to perform well when the economy is weak. When growth ...
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Calculating Effective Maturity with Negative Cash Flows

The formula for effective maturity. Suppose that an installment plan also shows additional borrowings of a debtor. That is, at some point in time (other than the inception date) the borrower is given ...
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Testing asset pricing models with Roll's critique in mind

Roll's critique (Roll, 1977) can be summarized as follows (quoting Wikipedia): Mean-variance tautology: Any mean-variance efficient portfolio $R_{p}$ satisfies the CAPM equation exactly: $$ E(R_{i})-...
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Calculating the value of this asset

calculate the cash value of a financed asset that is paid in the following way: an initial payment of 500,000, in month 2 a payment equal to half its value, in month 7 a payment equal to a third of ...
2 votes
3 answers
28k views

How to calculate average buy price when you buy, sell and rebuy

I wanted to get my average buy price for some stocks I bought and see if I made money. So far, for just buying and then later selling, I have been calculating the average buy price using this formula <...
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2 answers
427 views

How does the fractional reserve banking system work?

I would like to understand better exactly how this works. I have heard a lot recently (particularly since the 2007-08 crash and Occupy movement) about money creation in particular (usually with a very ...
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Digital Impact on External Audit?

Do any of you have theses, research papers, or articles related to the topic of 'Digital Impact on External Audit'? I am a Ph.D. student, and I have been struggling to find a professor to supervise my ...
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Was must we invest in the highest NPV project?

I have this simple problem about Net Present Value (NPV) and I was wondering why should we maximise it. Suppose you have a firm and you can either sell it now for $ \\\$ $ 200.000 or invest $ \\\$ $30....
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What, quantitatively, is the problem with treating two conceptually nearby trading indicators as independent pieces of evidence?

Suppose you come across a financial trading system which starts by checking a security's 200-Period Moving Average, either by itself or in conjunction with the security's price data, perhaps signaling ...
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1 answer
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Price discrepancy between the same company's stock on two exchanges

The graph shows a company's stock prices on two exchanges: New York Stock Exchange (NYSE) and Oslo Stock Exchange (OSE). Since these prices are denominated in different currencies, the NYSE price is ...
2 votes
2 answers
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How to prove the value of a European Call Option is convex on the underlying’s price?

I know the payoff of a European Call at expiration is $\max\{S_T - K,0\}$, where $S_T$ is the underlying price at expiration and $K$ is the strike price. I want to prove convexity of the value of a ...
1 vote
1 answer
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primary impact on real estate prices/taxes

Are my housing prices/taxes more influenced by the $40M beach house a few miles away from my home or those in the lower-class well beyond my county line? Assuming a few basics: there are differing ...
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Funding the American Economy During the Gilded Age

Does anyone know how John Pierpont Morgan Sr. funded the American economy during the Gilded Age? I'd like to learn about his methods and the significant role he played in shaping the economy through ...
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Show withdraw funds from trading account in Google Sheets

I am tracking my portfolio in Google Sheets. I have columns like daily NLV, % and value change etc. This stats are used to calculate some extra data and draw performance charts. Now, I want to ...
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Stochastic discount factor derivation

What are the intermediate steps to arrive at equation (4) in Lettau and Wachter 2007? Here is the paper: https://drive.google.com/file/d/1Bc0oOqKGm0otYbywf5gdfwzpRpA-D11p/view I am confused why there ...
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1 answer
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Showing that a market model has arbitrage and describing martingales

This is an exercise which I came upon while studying an introduction to financial mathematics. Exercise : Consider the finite sample space $\Omega = \{\omega_1,\omega_2,\omega_3\}$ and let $\...
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Futures Market Books

Are there any recommendation for futures market or commodity trading books? I am not interested in trading myself, but would like to have a better understanding of it for my research.
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Habit formation ala Constantinides (1990)

Consider the following problem, from Constantinides (1990). \begin{align} V(W_0, x_0) \equiv \max_{c, \alpha} \mathrm{E}_0 \int_0^\infty e^{-\rho s}\gamma^{-1}[c(s) - x(s)]^\gamma \mathrm{d}s, \end{...
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In bond markets, how does the number of banks in an underwriter syndicate grow as they share risk on larger deals?

If I look at a large collection of underwriter syndicates (underwriting green bond issuances), I can see there is, on the whole, a quadratic relationship between the value $v$ in USD that the ...
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2 answers
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What would be a truly universal currency?

I have no clue where to ask this, so here it goes... With the advent of LK99 and its potential uses in recent solutions for modified Alcubierre drive fields, it pushes me to wonder: What if humanity ...
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How to calculate returns for other frequencies?

Hey am newb started studying economics I have questions about returns of any asset I know how to calculate annualized returns by (1+returns)^(1/N)-1=annualized_returns N=number of periods Let's say I ...
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What at all justifies income taxes (as opposed to sales taxes only)?

For those who do not know, in America, the higher your income, the higher the percent of it is spent on taxes. This means that, whatever tax money is used for, those who are more hardworking (or, at ...
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Do market volatility and optimal trade confirmation strength correlate?

In this video, it is suggested that in high volatility markets, trading algorithms which wait for more confirmation to buy perform better than trading algorithms which buy more quickly, while in low ...
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Accounting for differences in average teacher salaries, adjusted for inflation and the cost of living in each state

My aim is to determine whether teacher salaries in all 50 of the United States over between 2013 and 2023—adjusted for inflation and the cost of living—differ significantly. I would like to ask what ...
2 votes
2 answers
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Exchange economy with two agents, what's the competitive equilibrium?

I'm currently doing this assignment but I'm keep getting stuck by this question. I put the Lagrange function for both agents and get the MRS / Price ratio but what should I do from there?
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Difference between Negotiable Instrument and Financial Asset

So here are the two pages I was reading to try and understand : Negotiable Instrument and Financial Asset Confusion started as both pages use Certificates of Deposits(CDs) as an example.So a CD is ...
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How to get range of possible returns on market portfolio from two points on minimum variance frontier

I am revising for an exam in financial economics and have come across this part paper question, which has left me completely stuck: "Consider a CAPM economy with just three risky assets, A, B, ...
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Corporate finance thesis on financial constraints and investment

I am currently writing a masters thesis within corporate finance and am seeking help to understand some concepts and theories in regards to some regression results i have obtained through empirical ...
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how to forecast smaller balance sheet items

How might you forecast smaller line items on the balance sheet? For example like current liabilities, current portion of long-term debt or notes payable when doing a 3-statement model? Would it be ...

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