Lecture #9 - Ec 136, Financial Economics Lecture 9...

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Ec 136, Financial Economics Lecture 9 September 24
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Outline for today 1. Midterm 2. Bond pricing: lessons 3. Mortgage bonds 4. Bank runs www.econ.berkeley.edu/~szeidl/ec136/ec136index.htm Midterm 1 : September 29, Tuesday.
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1. Midterm Same format as sample midterm. Bring: 1. a calculator, 2. a two-sided 8 : 5 ± 11 sheet with handwritten formulas/notes, 3. as many blue books as you think you need. Priorities for preparation: 1. Lecture notes. 2. BKM text. Please be on time.
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2. Bond pricing: lessons 1. Coupon bonds are packages of zero coupon bonds. Treasury coupon bonds are regularly stripped of interest payments which are traded sepa- rately as zero-coupon bonds: STRIPS. 2. Price and the yield of bond are inversely related. For a zero coupon bond P = F (1 + R ) T : Also true for a coupon bond. 3. For long maturities, price is more sensitive to yield. For a zero-coupon bond log P = log F ± T ² log (1 + R ) :
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3. Mortgage bonds Mortgage is investment to mortgage originator
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Lecture #9 - Ec 136, Financial Economics Lecture 9...

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