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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:
Instantaneous compounding:
Continous compounding more elegant mathematically and monthly compounding is more common in the real world, but we will stick with annual compounding.
Use Table A to value pure discount bonds.
Table C simplifies the task of valuing periodic payments like the coupons on a coupon bond.
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.
Posted by bparke at January 27, 2005 12:12 AM