investment-education

Learn how futures prices are determined using the cost-of-carry model, why markets trade in contango or backwardation, and how futures prices converge to spot at expiry.

The profitability index (PI) measures the value a project creates per dollar invested, making it essential for capital rationing decisions. Learn the PI formula, interpretation, and how it compares to NPV.

Counterparty credit risk is the risk that an OTC derivative counterparty defaults before fulfilling its obligations. Learn how it is measured using EPE, ENE, PFE, and EE, how institutions mitigate it through netting, collateral, and central clearing, and how CVA prices this risk into derivative valuations.

Learn how futures contracts work, including margin requirements, daily settlement, clearinghouse mechanics, and how futures differ from forward contracts.

Learn what the payback period and discounted payback period measure, how to calculate them, and how they compare to NPV for capital budgeting decisions.

Purchasing power parity (PPP) explains why exchange rates adjust to equalize the cost of goods across countries. Learn the absolute and relative PPP formulas, Big Mac Index, real exchange rates, and why PPP matters for international investors.

The binomial option pricing model prices options by building a tree of possible stock prices and working backward using risk-neutral probabilities. Learn the CRR parameters, one-step and multi-step trees, the replicating portfolio approach, and how to price both European and American options with step-by-step examples.

Interest rate parity (IRP) is the no-arbitrage relationship linking interest rate differentials between two countries to their forward exchange rate. Learn the covered and uncovered IRP formulas, forward premium and discount, and why UIP violations create carry trade opportunities.

The weighted average cost of capital (WACC) is the blended cost of equity and after-tax debt that serves as the hurdle rate for corporate investment decisions and DCF valuation.

Comprehensive guide to monetary and fiscal policy — how the Federal Reserve sets interest rates, expansionary vs contractionary policy, the Fisher equation linking nominal and real rates, and how policy decisions affect bonds, equities, currencies, and the broader economy.