Lenders and borrowers can choose from a variety of loan structures. The choice of the loan structure will determine the pay rate, which in turn will affect the loan balance at loan maturity. Pay rate = the payment option offered on a loan Accrual rate = the accrued (accumulated) interest rate on the loan that […]
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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
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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
Financial Markets = the arenas through which funds flow. They are an avenue through which households (savers) and business firms (savers) exchange and create financial assets such as stocks, bonds, foreign exchange and derivatives.
Types of Financial Markets Read More »
What is accounting?
Before we start to delve into the world of trial balances, income statements, balance sheets, and cash flow statements, let’s ask ourselves, “what is accounting?”.
Intro to Financial Accounting – Topic 1 Read More »