Present Value Present Value = Value today of a future cash flow. Discounting = finding out the present value from the future value. Formula: DF measures the PV of $1 received in year t. (FYI there is an indirect relationship between the PV and the interest rate and the PV and time. Therefore, the higher […]
Time Value of Money – Present Values and Future Values Read More »
Expectation of future interest rates and future inflation rates The investor uses the forward rate observed at time zero as a predictor of the expected short-term interest rates in the future and expects that short-term interest rates will be higher in the future. The expectations theory helps us understand the shape of the yield curve
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The duration of a bond is the weighted average of times each payment happens. Once you know the duration, you can measure how the bond’s price changes when the interest rate changes. Thus, duration measures the riskiness of a bond. The higher the duration, the higher the riskiness. Maturity, Coupon Rate and Duration The duration
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what are bonds? A bond is a long-term loan, security or a financial contract that obligates the issuer to make specified payments to the bondholder. It is a key source of capital for the corporate world. If you need cash to buy assets for your company, you can ask investors to buy your bonds. In