ECO358_TVM_Review_F2018.pdf

Robert j mckeown u of t eco358 introduction when do

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Robert J. McKeown (U of T) ECO358 October 17, 2018
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Introduction When Do we Use EAR? Investors make investments for di erent holding horizons. Question: how do we compare 6-month investment opportunities to the one-year investment opportunities? Approach 1: express everything in dollar terms today or one year from today. ($) Approach 2: express investment returns in terms of the e ective annual rate. (%) Bottom line : must use e ective rates in present (and future) value computations. Robert J. McKeown (U of T) ECO358 October 17, 2018
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Introduction Final Words on Compounding When we discuss bonds, we will talk about yields (aka rates of return in bond-speak). The yield that we will focus on (“yield to maturity”) is typically expressed as an annualized value (akin to APR), yet coupon payments are paid semi-annually. Robert J. McKeown (U of T) ECO358 October 17, 2018
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