ECO102H1 Lecture 11: ECO102 - LEC11 - Financial System Part 2
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Futurevalue fv: abond the amount to be repaid fixed including default risk the amount received today depends on nominal interest rate generally high liquid easy to resell due to large number of purchasers. Bothcases real value of repayment depends on real interest rate shared default risk. Bonds e. ltfinancial product promising specific payments at specific dates in the future. Face value fu amount of the final repayment ie future repayment smaller payment at specified times before. Price depends on market value in order to receive coupon payments and face value in the future from investing in a bond at agiven. Yield the return in price i assume the bond in repaid the interest rate impliedby the bond"s price. Pbond expected present value of coupon t face value. A bond"s price is negatively related to its yield. A 211000 bond mature in 1 year i. Assets lose value due to inflation t pbond. 44. 000 bond maturing in 1 year never interest rate.