Open Yale CoursesECON 251: Financial TheoryLecture 10 - Dynamic Present Value<< previous session | next session >>Overview:In this lecture we move from present values to dynamic present values. If interest rates evolve along theforward curve, then the present value of the remaining cash flows of any instrument will evolve in apredictable trajectory. The fastest way to compute these is by backward induction. Dynamic present valueshelp us understand the returns of various trading strategies, and how marking-to-market can prevent somesubtle abuses of the system. They explain how mortgages work, why they're called amortizing, and what is
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