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Unformatted text preview: 1 Interest Rates simple and compound interest discrete and continuous compounding and growth and rule of 72 Present value,discounting and Yield to maturity Consols/Perpetuities P=C/r 1 Bond pricing and yield ( coupon rate, current yield, yield to maturity, yield to call, zero coupon bonds and maturity Discounted dividends model P=D/(r-g) nominal vs real rates Fishers equation In the News? 2 Interest Rates Cost of borrowing/ return for lending funds APR - yield to maturity correct measure APY normalized to annual rate Nominal rate = # of dollars expressed as % of amount Real rate what you can buy with $ 3 Real rate-what you can buy with $ adjusted for inflation r real = r nominal exp inflation Or r nominal= r real + exp inflation Real rate should matter in decisions In SR, with inflation unchanging, real correlated with nominal 2 Compound growth and rule of 72 Simple Interest (growth) FV=PVX (1+I X n)...
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This note was uploaded on 02/20/2012 for the course 220 301 taught by Professor Carlshu-minglin during the Fall '10 term at Rutgers.
- Fall '10