BIOSC 0150 Lecture Notes - Lecture 5: Real Interest Rate, Credit Risk
29 Aug 2016
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Higher default rate leads to a higher coupon rate, and lowers the bond"s price. Taxable interest increase coupon rate and decrease the bond"s price. Real interest rate = nominal interest rate - inflation rate. High inflation rate increases the coupon rate and decreases the bond"s price. Longer time to maturity will have a higher coupon rate and decrease the bond"s price. Bank gives you interest rate of r=10%(market interest rate) Compound interest - interest calculated on initial deposit or loan and also on accumulated interest in previous periods. Withdraw money and close the account after 5 years. General formulas (1) future value (fv) = pv x (1+r)n (2) present value (pv) = (1/(1+r)n x fv = fv/(1+r)n. Mike wins ,000 in a lottery in 10 years. How much would the money be worth today given the market interest rate is 7% You own a bond: face value = ,000 coupon rate = 5%time to.
