Lecture10

Lecture10 - D=Discount, F=100, Y=Asked/100, t=Days) Yield =

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Lecture 10 : Debt Markets and Term Structure Economics 252, Spring 2008 Prof. Robert Shiller, Yale University
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Discount Bonds Pricing Term T, Yield to Maturity (YTM) r
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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 .
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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
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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....
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This note was uploaded on 02/08/2012 for the course ECON 252 taught by Professor Robertshiller during the Spring '08 term at Yale.

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Lecture10 - D=Discount, F=100, Y=Asked/100, t=Days) Yield =

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