E305 Chapter 4 - Chapter 4_ Understanding Interest Rates...

This preview shows page 1 - 2 out of 2 pages.

Chapter 4_ Understanding Interest RatesMEASURING INTEREST RATESPresent ValueDollar paid to you one year from now is less valuable to you than a dollar paid to youtodaySimple Loan – lender give borrower an amount of fund (principal) that must be repaid tothe lender at the maturity date, along with additional payment for interestPV =Four Types of Credit Market Instruments1.Simple loane.g. commercial loans to businesses2.Fixed Payment loan (fully amortized loan)Lender give borrower an amount of funds, which must be repaid by making thesame PMT every period, consisting of part of the principal and interest for a setnumber of years.3.Coupon BondCoupon bond pays the owner of the bond a fixed interest payment (couponpayment) every year until the maturity date, when a specified final amount (facevalue/ par) is repaid.A coupon bond is identified by 3 pieces of informationFirst is the corporation / government agency that issues the bondSecond is the maturity date of the bond

Upload your study docs or become a

Course Hero member to access this document

End of preview. Want to read all 2 pages?

Upload your study docs or become a

Course Hero member to access this document

Term
Spring
Professor
Reiben

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture