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January 27, 2005

Interest Rates

We worked with the first page of the interest rates handout and the interest rate tables.

Annual and quarterly compounding:

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Instantaneous compounding:

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Continous compounding more elegant mathematically and monthly compounding is more common in the real world, but we will stick with annual compounding.

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Use Table A to value pure discount bonds.

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Table C simplifies the task of valuing periodic payments like the coupons on a coupon bond.

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We concluded by showing that, if the interest rate changes to 5% or 15%, the value of a 10% 30-year coupon bond changes a lot.

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Posted by bparke at January 27, 2005 12:12 AM

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