UECM1403 Theory of Interest
Topic 3
Basic Annuities
1.
Introduction
Annuity = a series of payments made at equal intervals of time. More
generally, any terminating stream of fixed payments over a specified period of
time.
Annuity-certain = an annuity such

UECM1403 Theory of Interest
Topic 3
Basic Annuities
1.
Introduction
Annuity = a series of payments made at equal intervals of time. More
generally, any terminating stream of fixed payments over a specified period of
time.
Annuity-certain = an annuity such

UECM1403 Theory of Interest
Topic 2
Solutions of Problems in Interest
1.
Interest Problem
An interest problem involves four basic quantities:
The principal originally invested.
The length of the investment period.
The rate (or force) of interest (or disco

Test 2
1.
Find the accumulated value at the end of 10 years of an annuity in which payments are
made at the beginning of each half-year for 5 years. The first payment is $2000, and
each payment is 98% of the prior payment. Interest is credited at 10% conv

UECM1403 Theory of Interest
Topic 4
More General Annuities
1.
Level Payment Annuities Some Generalization
1.1
Differing payment & Interest conversion
Previously, the payment period and the interest conversion period of annuities
are assumed equal and coin

Topic 6
Bonds
1.
Introduction
One of the major applications of the theory of interest is the determination of prices and values
for bonds and other securities, such as preferred stock and common stock. There are three main
questions which Topic 6 consider

Topic 8
Practical Applications
1.
Yield Curves, Spot Rates and Forward Rates
1.1
Yield Curves
Term structure of interest rates = A relationship between rates of interest and
the term of the investment / financial instrument.
Yield curve = the graph that d

Topic 7
Yield Rates
1.
Discounted Cash Flow Analysis and Net Present Value
1.1
Discounted cash flow analysis
In previous topics, we have analyzed the present values of various types of
financial transactions consisting of regular series of payments.
The a

UECM1403 Theory of Interest
Topic 5
Amortization Schedules and Sinking Funds
1.
Introduction
This topic discusses two methods of repaying a loan:
The Amortization Method: In this method the borrower repays the lender by
means of installment payments at pe

Topic 7
Yield Rates
1.
Discounted Cash Flow Analysis and Net Present Value
1.1
Discounted cash flow analysis
In previous topics, we have analyzed the present values of various types of financial
transactions consisting of regular series of payments.
The a

Topic 8
Practical Applications
1.
Yield Curves, Spot Rates and Forward Rates
1.1
Yield Curves
Term structure of interest rates = A relationship between rates of interest and the term
of the investment / financial instrument.
Yield curve = the graph that d

UECM1403 Theory of Interest
4.
Sinking Funds
4.1
Sinking fund with an interest same as the rate of the loan
A borrower can accumulate a fund which will exactly repay the loan in one lump sum
at the end of a specified period of time. This fund is called a

UECM1403 Theory of Interest
Topic 4
More General Annuities
1.
Level Payment Annuities Some Generalization
1.1
Differing payment & Interest conversion
Previously, the payment period and the interest conversion period of annuities
are assumed equal and coin

UECM1403 Theory of Interest
Topic 2
Solutions of Problems in Interest
1.
Interest Problem
An interest problem involves four basic quantities:
The principal originally invested.
The length of the investment period.
The rate (or force) of interest (or disco

UECM1403 Theory of Interest
Topic 5
Amortization Schedules and Sinking Funds
1.
Introduction
This topic discusses two methods of repaying a loan:
The Amortization Method: In this method the borrower repays the lender by means of
installment payments at pe

UECM1403 Theory of Interest
Topic 1
Measurement of Interest
*Examples will be given during the lecture*
1.
Interest Accumulation and Effective Rates of Interest
1.1
Definition
A common financial transaction is the investment of an amount of money at inter

UECM1403 Theory of Interest
Topic 6
Bonds
1.
Introduction
One of the major applications of the theory of interest is the determination of prices and
values for bonds and other securities, such as preferred stock and common stock. There are
three main ques

UECM1403 Theory of Interest
Topic 1
Measurement of Interest
1.
Interest Accumulation and Effective Rates of Interest
1.1
Definition
A common financial transaction is the investment of an amount of money at interest. For
example, a person may invest in a s