lecture2 (1)

lecture2 (1) - Lecture 2: Financial Markets and Products...

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Lecture 2: Financial Markets and Products Steven Skiena Department of Computer Science State University of New York Stony Brook, NY 11794–4400 http://www.cs.sunysb.edu/ skiena
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Bond Markets Bond markets trade bonds (“loans”) made to governments and government agencies, as well as companies. Bonds are contracts for a specified party makes a specified sequence of payments according to a specified schedule. The ability to trade debt increases the value and liquidity of such investments. Bond prices vary according to the term (length of time) of the loan, the interest rate and payment schedule, the financial strength of the borrowing party, and the returns available from other investments.
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The Time Value of Money The value V of an asset A after n years of compounding m periods per year at an annual interest rate of r is V = A (1 + r/m ) mn In the case of continuous compounding, m → ∞ and V = Ae rn This exponential growth explains why compound interest is a good thing. The time value of money is a fundamental principle regulating how the world works.
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Perpetual Annuities What is the value of a security which pays you $1 per year forever ? You will eventually receive an infinite number of dollars, so is it infinite? The
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This note was uploaded on 01/02/2012 for the course FINANCE 347 taught by Professor Bayou during the Fall '11 term at NYU.

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lecture2 (1) - Lecture 2: Financial Markets and Products...

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