P1.Valuation tuckman - learning spreadsheet

jamesphang

New Member
Hi forum admin/friends of bionic turtle,

I am not able to locate the learning spreadsheet for part 1 valuation tuckman.
Please direct me to the appropriate link please. Many thanks.

Cheers,
James
 

Brian_no9

New Member
Hi David,

I am looking at the Tuckman excel spreadsheets, and the example that addresses Duration and Semi-Annual Compounding.

The calculation for the discount factor is kinda puzzling as it is given by 1/(1+Semi-Annual Yield)^n.
Where n is 1 for six months, 2 for 12 months, etc.. till 20 for year 10.

However the definition in both Hull and Tuckman defines the discount factor as 1/(1+Semi-Annual Yield)^mn
Where m = 2 and n = 10.

Will you please explain why the discount factor is not m(n) for all the cashflows?

Kind regards,
Brian
 

David Harper CFA FRM

David Harper CFA FRM
Subscriber
Hi @Brian_no9

Sorry, I am not sure where you are getting your second reference from: "However the definition in both Hull and Tuckman defines the discount factor as 1/(1+Semi-Annual Yield)^mn"?

Perhaps sheets 4.c.3 could be better labelled but they look okay to me (as i scan them).
This is reliable: DF = 1/(1+yield/m)^(m*n)

Because it handles any k:
  • if m = 1 (i.e., annual compounding), then DF = 1/(1+yield)^n
  • if m = 2 (i.e., semi-annual compounding), then DF = 1/(1+yield/2)^(n*2)
So in one sheet the "semi-annual yield" refers to yield/2 (cell 15; e.g., yield is 6% such that "semi-annual yield" is 3%) and year 10 is given by 10*2 = 20, such that 1/(1+Semi-Annual Yield)^n is consistent with 1/(1+yield/2)^(n*2) but the (n) is probably confusing in that case (at the time, I think it did match the author's usage because n = 20 is true as the number of periods, when years are 10 and k = 2). So, I don't perceive there to be any fundamental definitional inconsistency. F = 1/(1+yield/m)^(m*n) is reliable it's just that:
  • yields is annual but yield/m is per the period and, in that XLS, is called "semi-annual yield." This is exactly why per annum rates (volatility, yield) are the convention upon input and output, it gets easily confusing otherwise.
  • And when k = 2 over T = 10 years, then n = 20, but I am relieved I use (n) and not (T). It would be wrong to use (T). I hope that explains!
 
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