Course Objectives Chapter 3 Econ 423 - Financial Markets Lauren Heller, Summer 2009 Chapter 3: Interest Rates and Their Role in Valuation Objectives – By the end of this chapter, you should be able to: o Understand the difference between simple loans, fixed payment loans, coupon bonds, and discount bonds, in terms of: The present value of all cash flows from these instruments The effects of an interest rate change on the price of the instrument The differences in cash flows and interest rate payments o Calculate the interest rate, payment amounts, face value and price of all four types of credit instruments discussed in this chapter. o Distinguish between the real and nominal interest rate, and be able to calculate the impact of a change in one of these rates on future returns and purchasing power. o Differentiate between the interest rate, yield to maturity, and return on all four types of credit instruments. o
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