# Yes the dierence between a perpetuity today and a

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Unformatted text preview: ipal Is there a closed-form expression for this sum? Yes: the diﬀerence between a perpetuity today and a perpetuity N /2 years forward. Fixed Income I: R. J. Hawkins Econ 136: Financial Economics 14/ 19 Price-Yield Relationships: Bonds with a Round Number of Coupon Periods to Maturity The bond formula: Pbond = C 100 − C /Y + Y (1 + Y /2)N Implications: 1 If the yield equals the coupon the bond price is equal to par. 2 If the yield is less than the coupon the bond price is greater than par. 3 If the yield is greater than the coupon the bond price is less than par. 4 Bond prices move inversely to bond yields. Fixed Income I: R. J. Hawkins Econ 136: Financial Economics 19/ 19 Fixed-Income Analytics Cash ﬂows, discount factors and interest rates. 1.2 Principal (\$) Interest(\$) Discount Factor Interest Rate 1 0.8 0.6 0.4 0.2 0 0 1 2 3 TENOR (years) Fixed Income III: R. J. Hawkins 4 Econ 136: Financial Economics 5 5/ 24 The Term Structure of Interest Rates We begin with bond prices. Treasury Bond Prices for 0...
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## This note was uploaded on 01/23/2014 for the course ECON 136 taught by Professor Szeidl during the Fall '08 term at University of California, Berkeley.

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