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INTRATESCLASS

# INTRATESCLASS - 1 Interest Rates Â simple and compound...

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Unformatted text preview: 1 Interest Rates Â¡ simple and compound interest Â¡ discrete and continuous compounding and growth and rule of 72 Â¡ Present value,discounting and Yield to maturity Â¡ Consols/Perpetuities P=C/r 1 Â¡ Bond pricing and yield ( Â¢ coupon rate, current yield, yield to maturity, yield to call, zero coupon bonds and maturity Â¡ Discounted dividends model P=D/(r-g) Â¡ nominal vs real rates â€“ Fisherâ€™s equation In the News? 2 Interest Rates Â¡ Cost of borrowing/ return for lending funds Â¡ APR - yield to maturity â€˜ correct measureâ€™ Â¢ APY â€“ normalized to annual rate Â¡ Nominal rate = # of dollars expressed as % of amount Â¡ Real rate what you can buy with \$ 3 Â¡ Real rate-what you can buy with \$ Â¢ â€˜adjustedâ€™ for inflation Â¢ r real = r nominal â€“ exp inflation Â¢ Or r nominal= r real + exp inflation Â¢ Real rate should matter in decisions Â¡ In SR, with inflation unchanging, real correlated with nominal 2 Compound growth and rule of 72 Â¡ Simple Interest (growth) FV=PVX (1+I X n)...
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INTRATESCLASS - 1 Interest Rates Â simple and compound...

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