massign11 - Money and Banking N. Sheflin ASSIGNMENT 11...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Money and Banking N. Sheflin ASSIGNMENT 11 NOTES : Measuring interest rates, bond pricing, Discounting, Discounted Dividends model. The only formulas you need to memorize are: present value (yield to maturity), pv of a perpetuity, discounted dividends model, rule of 72. Watch out for Croushore’s car leasing analysis (ask me why) Also Investment Game Round 4 – Bonds (cannot buy them in Marketwatch, but much to read about and do). And clicker quiz on mutual funds in class. EARLY WARNING FINAL EXAM coming - do not make travel plans for Tuesday May 10, noon – there is no makeup for the final unless there is a conflict or major, documented personal illness or catastrophe. Much more information will be coming over the next weeks, including: a review guide, a set of essential questions, help with EXAM WILL BE HELD ON THE OFFICIALLY SCHEDULED DATE. READING Croushore 4 Also, A simple site on finance issues with an excellent glossary look at Time Value of Money Perpetuities Stock Valuation Bond Valuation And the ‘Buffet Value Formula” at and KEY POINTS Interest Rates o simple and compound interest o discrete and continuous compounding and growth o rule of 72 Present value and discounting o Discrete and continuous discounting o Yield to maturity o Why discount? Consols/Perpetuities Bond pricing o interest measures: coupon rate, current yield, yield to maturity, yield to call o zero coupon bonds o interest rates, and maturity Discounted dividends model nominal vs real rates – Fisher’s equation
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Note i=r=interest rate COMPOUNDING AND PRESENT VALUE 1. Future Value (FV) = Present Value (PV) x (1+i) n ex $100 in bank for 2 years at 10% = 100x(1+.1) 2 = 121 2. Present Value (PV) =Future Value (FV) / (1+i) n ex $121 in 2 years at 10% is equivalent to $100 today o The PV is the amount you could put in the bank today to grow to the FV in n years; i.e., we discount (remove) from the FV the interest that would have been earned over the n years. We discount because
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 10/11/2011 for the course ECON 336 taught by Professor Hassan during the Spring '08 term at Rutgers.

Page1 / 4

massign11 - Money and Banking N. Sheflin ASSIGNMENT 11...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online