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Lecture10

Course: ECON 252, Spring 2008
School: Yale
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Word Count: 187

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10: Lecture Debt Markets and Term Structure Economics 252, Spring 2008 Prof. Robert Shiller, Yale University Discount Bonds Pricing Term T, Yield to Maturity (YTM) r Compound Interest If annual rate is r, compounding once per year, balance = (1+r)t after t years. If compounded twice per year, balance is (1 +r/2)2t after t years. If compounded n times per year, balance is (1+r/n)nt after t years. Continuous...

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10: Lecture Debt Markets and Term Structure Economics 252, Spring 2008 Prof. Robert Shiller, Yale University Discount Bonds Pricing Term T, Yield to Maturity (YTM) r Compound Interest If annual rate is r, compounding once per year, balance = (1+r)t after t years. If compounded twice per year, balance is (1 +r/2)2t after t years. If compounded n times per year, balance is (1+r/n)nt after t years. Continuous compounding, balance is ert. Price & Yield on T-Bills For buyer, Price = 100-Discount Discount = Asked*(Days to Maturity/360). (Same as on formula page 295 of Fabozzi, where D=Discount, F=100, Y=Asked/100, t=Days) Yield = (Discount/Price)(365/(Days to Maturity)). (Unless maturity > 6 months, in which case quadratic formula using semi-annual compounding is required.) Conventional Bonds Carry Coupons Conventional Bond Issued at par (100), coupons every six months. Term is time to maturity. Forward Rates J. R. Hicks Value and Capital 1939 Inflation and Interest Rates Nominal rate quoted in dollars, real rate quoted market baskets Nominal rate usually greater than real rate.
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Yale - ECON - 252
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Yale - ECON - 252
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Yale - ECON - 252
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Yale - ECON - 252
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Yale - ECON - 252
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Yale - ECON - 252
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Yale - ECON - 252
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Yale - ECON - 252
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Yale - ECON - 252
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Yale - ECON - 252
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Yale - ECON - 252
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Yale - ECON - 252
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Yale - ECON - 252
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Yale - ECON - 252
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Yale - ECON - 252
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Yale - ECON - 252
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