FORMULA SHEET

The price of a bond, , is given by:

[1
]
+
(1 + )
(1 + )

where is the coupon, is the yield-to maturity, is the time to maturity and is the face
value.
If and are two random variables and and are two constants then:
( + ) = () + ()
() = ()
() = (, )
(, ) = (, )
(, ) =
(, ) = (, )
The solution to the quadratic equation
2 + + = 0
is
12 =

2 4
2

The Modified Duration of a bond, , is given by

=

(1 + )

where is the Macaulay Duration and is the yield-to maturity

The return on a portfolio, , consisting of assets and is given by
= +
where , are the weights allocated to assets A and B and , are the returns
respectively