ECON 1110 Lecture Notes - Lecture 19: Demand Curve, Opportunity Cost, Aggregate Demand
8 Apr 2016
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Chapter 28: money, interest rates, and economics activity. Two types of assets: money, bonds (interest-bearing) Bond: a financial asset that promises to make one or more specified payments at specified dates in the future. Present value: the value now of one or more payments or receipts made in the future. Amount received one period from now = present value (1 + interest rate) Pv = r1 / 1 + i. R1 = i = 0. 07 time horizon: 1 period. Pv = 100 / 1 + 0. 07 = 100/1. 07 = . 46. At 7% interest you will need . 46 today to receive one period from now. Pv = (r1 / 1 + i) + (r2 / (1+i) 2) + (r3 / (1+i) 3) + + (rt / (1+i) t) Notice: the pv of a bond that promises a future payment or sequence of payments is negatively related to the market interest rate.
