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INTRATESCLASS

INTRATESCLASS - 1 Interest Rates simple and compound...

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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 – Fisher’s 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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INTRATESCLASS - 1 Interest Rates simple and compound...

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