Finance Formulas / May 14, 2018 / Alyvia French
Typical bonds consist of semi-annual payments costing $25 per coupon. Coupons are usually described according to the coupon rate. The yield the coupon bond pays on the date of its issuance is called the coupon rate. The value of the coupon rate may change. Bonds with higher coupon rates are more attractive for investors since they provide higher yields. The coupon rate is calculated by taking the sum of all the coupons paid per year and dividing it with the bond's face value.
The PV, or present value, portion of the loan payment formula uses the original loan amount. The original loan amount is essentially the present value of the future payments on the loan, much like the present value of an annuity.
Diluted EPS is a calculation used to gauge the quality of a company's earnings per share (EPS) if all convertible securities were exercised. Convertible securities are all outstanding convertible preferred shares, convertible debentures, stock options, and warrants. Unless a company has no additional potential shares outstanding (rare), the diluted EPS will always be lower than the simple or basic EPS.
The annuity payment formula shown is for ordinary annuities. This formula assumes that the rate does not change, the payments stay the same, and that the first payment is one period away. An annuity that grows at a proportionate rate would use the growing annuity payment formula.
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