{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Lecture10 - D=Discount F=100 Y=Asked/100 t=Days • Yield...

Info icon This preview shows pages 1–14. Sign up to view the full content.

View Full Document Right Arrow Icon
Lecture 10 : Debt Markets and Term Structure Economics 252, Spring 2008 Prof. Robert Shiller, Yale University
Image of page 1

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

View Full Document Right Arrow Icon
Image of page 2
Discount Bonds Pricing Term T, Yield to Maturity (YTM) r
Image of page 3

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

View Full Document Right Arrow Icon
Compound Interest If annual rate is r, compounding once per year, balance = (1+ r ) t after t years. If compounded twice per year, balance is (1 + r /2) 2 t after t years. If compounded n times per year, balance is (1+ r / n ) nt after t years. Continuous compounding, balance is e rt .
Image of page 4
Price & Yield on T-Bills For buyer, Price = 100-Discount Discount = Asked*(Days to Maturity/360). (Same as formula on page 295 of Fabozzi, where
Image of page 5

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

View Full Document Right Arrow Icon
Image of page 6
Image of page 7

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

View Full Document Right Arrow Icon
Image of page 8
Image of page 9

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

View Full Document Right Arrow Icon
Image of page 10
Image of page 11

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

View Full Document Right Arrow Icon
Image of page 12
Image of page 13

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

View Full Document Right Arrow Icon
Image of page 14
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: D=Discount, F=100, Y=Asked/100, t=Days) • Yield = (Discount/Price)(365/(Days to Maturity)). (Unless maturity > 6 months, in which case quadratic formula using semi-annual compounding is required.) Conventional Bonds Carry Coupons • Conventional Bond Issued at par (100), coupons every six months. • Term is time to maturity. Forward Rates J. R. Hicks Value and Capital 1939 Inflation and Interest Rates • Nominal rate quoted in dollars, real rate quoted market baskets • Nominal rate usually greater than real rate....
View Full Document

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern