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Wah University, Pakistan
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0% found this document useful (0 votes)
70 viewsInterest Rate Notes
Wah University, Pakistan
Uploaded by
jamilkhannCopyright
© © All Rights Reserved
Available Formats
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/ 11
2 _Ttereat Kale > Price of cxelt loon)
‘This pre ts deteanined by demene onl Supply of {ods The mon ele 4 inert tal.
re Te inceades /
; actadunre people iS pos} pone speadiy (148) fo wonder andi fR, rars
Present valo telson;
Root Ke he nk = RU+dy
ody fibve a
Compound interes Gateteak om 0 tovorl far 9 ye"
J ge Beaks the 2(0B)
etpaly inforat: iter _ :
Single in bore tafered on prnep 1. p
heh ed uttee med io Uesy Gee | (ait eo,
: aM .
p A sn ident [eR lraeet) Port)
ZL come
Pz 102+ je 51, t=30, yr?
(02
de Single | Compo
~ .
. Hus, single tewes = It 4 (@)(0)
- Pee (P)(ty=2S0
a vale Compound inteted tole
0
e+ to (08)
3220 - 2L0 = Br
a (eo (W321) 9 432.20 :
Compound Inteart raD-
ce horie ine YY
ty teat el P
5
or t
(ew ft + Presed velo ef on ayet-
“it ed
(itt) ee (ir) Present value dencapl: het us Te
Conptre I value 4 one seanel
af augot (Abt inahraned) ot
wh Miers Mese ase Arve hore
J lifes coh pgs ® H
pe 8
thy olayos — Blei)t
holler witl fread oa pe Fy hope tetive vals (ch.
fe fe Gi
cra
as chop, a
Doles Fe ts vabacunlor expected valve.) Libect Ve some despee of rs
fe smart at diay aurct tol
The distant
watt fete velue
Foden effets Fre chenjer % mizcre-ecentme exnditis
2) chenges In Loup ord Feqalections
2) clung, in toe bose 2
4) chain in marsieg pg
Foor Taps of Cieb svt Iesbriments — based upon Choh Alans.
Lycnsey uth on omout ct {ud, vihich must
1) Sir ple loon > lender pinvt, #6
Ie leader ot medoniTy along vsith an al bit
(Conmercieh tooey Co basteses)-
be feporl te t a) rgret for oben’.
Oy mony snaneg ected inshemend
2) Fred Regmced lon oO seatiird Wan) Laem must be repel (22me peiyneed)
ere pertoel (ment, quot) Consisteg eo rl prectped ond interes) fw a jee pa:
“) InsteLHment loon (auto loens ) and matt Pi
5 42 ovsner fised interes) pyre Conpen peymert) every
Aes! Find ome
3) Coupes Bonds 91 pry
tees vot) te modvlly
(Foce vole [hy unlve) 1 reps
A eanpto bends ideobsicd by vee. pieos 9] iforenten.
4) Conpntadin ond Ager WA sue 1% bond
2) Medndly dle 1 bond
3) Coupon gate — peraoneje pu vaie ies as czyin payne
B Gupte bards ove. man cvomple of onpon band.
dale oncl 03 madon'ty dle a spe 1) ( ale ) jn f fs
= bond (Zen- Coupon band bousht at 2 pri below its
f, (oF di ) and He Peco alsa fs fepale) at Ke ma tarily dake
Unlike ¢ 1
bord, a discount bone) docs ned make Gay safest payment:
bed).
It 8,
SFnply Pre “f fe value. (T bills, Savy bonds, longs mn Qen~cypen
nile: Merve
Das: Troe foot Cys of ishomok seqole pared of eins Hee Saple
locas and scout bids alee poyrned only af IOs neti, wheres
peroclioatly unph}
fired - pogment Lend eens wad) Covyor bonds here pyre
tee rele on
metur f.
shomet wnt
vlote: Present ole proces vs wilt o proalore qe" meawry ?
4s ancl Compare He valve one
Dee
thse difewd "yer ef inghvmew
offers
a colenle ting tert vel.
4, _ Severet weir 1
est Kate. — A ast Tad “Tm”
Measwyi4g Tnfeu
HF eqns tee proses valve q
wo the interest rate
(“fr
4) Yie if He mney
ogtrmend with Ms pelos toc
Cosh floos Yecoled ors deb}
Banwwedl = 4/00" a the -fietl-ts-rnedon ly
' Ss -
Rapid uaz ber, pve SF foo M2
(ite) at)
(i)
po(rsy= 12% (rri)= 1
ee 1D-} a] ga +212)
doy 10> Fichet Yim= 121,
-—-_—_ Z :
AS fv we >
PV to
THe
mole : 5, fark le. loon. He engl inte ‘ale td fe-medo T
Te " Bs
fi vps rest ye egpeh of : leon thas te echt deo pared Prnghad He Ute ay .
Geledede Ytm fer a fire pepment ben.
Evemcl.
Stsm ond He yo -
: fer "y ash fies Paynat is ‘sg
be
wt EA — Bt on enennulfy
(rays
ee
|
| p= BAS 4
22 itt,
fo | was
le
BIS F | > 64-9? = Joo /
}
Ne Od |
r conten bend hes one mare cosh tw ad ech (Br value)
bon Hoel pagent
Hon feed fqn
Fremile
frente Pre qe bend = 8672, vfield-to-mehin = n(B) , Fu = low
2-954 Coupon pares 10% 9) pe pelue = teolfer
loen. Bud Seme SAsele i is adepetel te calalete its WT.
Annwel rntewd te = (2. DS
GOt2L= 100 + loo £ (00 [ovo
os oF +
it retrm (erry ¢ rermny’® (Yn) fe
eloles SE bs abo obled intel mE af valin (120), in os contre. bed molurg
“roll elo. Me bunt .
fret lo 7 hoaty on Woh Cope Fale
yo-yeru (For. ynbve > Yen)
pcb nebfD,
. five of nl (4)
1200
_. Hol ot
a ml ee ‘
| ea
ape.
CO
1 ~700
Soo
hice infeseabing fects emerjer
dis prod
oJ its dome yokes, fret) t maha’
4) whoa cenpan byes j
eguels coupon ate
9) The pre ap & conpen hond and He of
Gt Pin s bn
fe lated yield fo dus
ald fe metade aie rege
1:(4)-
Je
3) he yet fo modu] Is qicaler than Ke coupon we wher t&
bond price i, bel fo valve
ferpetuily consels AH is peopeloel bn will no natty dele ond
no sepayment prinipe tab makes fired
EC fotever-
poe OEE ee ry
4, 9 fold ancl
of
in
enya wie a Note: A loip- on bond beheres Lite 4 pope, became eae ‘
flows more Ron, Soy 0 Gears ih He foduce hare mall presnt
discsuntec! yaluos. Thos te ts very close te te elt B meh fw
Held Pel user) ac on
is also calleel coment yield
bonels.
any] Geom bonds Here, 2
Interest feb Oo ley. (sim
4 ppromimssion to desenbe
NDiscou -
) Disco Bond 4 These. Secudtion are sold at discount, meen Pe comet
pio of te bord belo foo vale.
Exenple: AT bll whieh Pat & face pale $/ in one yer hing If
He comet prichwe pre 4 ey, bill ts 1900. Thea its glob
mada ri by is calculated My eqpushey carted price te te preset aloe
fo eceivecl tn one yferr Fie pura) > py Fv
crz)
aq = [O_o (2%) Pow low
tee
Gove Gots low > Joe = lowm- to
é- (ox 700 = lom- 909 =. = eth
70° Fo
ok.
a pl —> Dt Shoulol be posite becaure a discamt
a: EP
a Fis by the 0.
Meo note tad €(fielol feomndosT7) for a cliscomt bond +5 negatively
elated te canert bond pre:
Tinportent Jot bad bond pre) oad thtowA yate.
—
Qvmrond a pines and iter? gale aso repebvely velafed inber:
yte f, fla _@ dnd felt. Distinction Py lnteveot yriles ond Ke leans
Suppose an investor cunt a longer ‘bord ifiolling [Ol interest rete
and taleteyt yale vos fe Bor How cloes tRed invester peifor by
holding a bond o any of seeuritiey over @ porticoler Hite pene t's
obfeimined by yelun, or «ate ri ye lun -
Fo ony Secunily, rate of relun is dingy ony po fo th Seely
te yelue capresso as a fraction of rts
holele plus tC ohonge Inf
i bonel bovslt for $ Jom, helel for
nel | f mv, h
Peichase price. Example, a coupon
tol
4 i900. cet coupon yate 13 10/.
one yeer, and ten sold for
fhe payne fo te. cloner ave gery conn ples pree
appectaton. So fate q relin ts 100 4200_= 30/,
[000
inte? 7212 on FoF
FE velion on a band is rot necovstly eyed 1
bond.
ez]
more jporerell te selitn on a Lorel hell for bine t fe Hime tel.
Re C+ Pah
fe
t
al, [Au Lek
rt 3 R ue,
/
. ,
icuneed opal yale of capil qe a
5 there (If) Si2able fluctustion s in pris of
l a er HE bond tat proceas subsenBiall api
jv oy locses
Nole
The telbin on bond equals il mmo only Y Hime -lo—medin
ond fold fered are Some, One yeor velins on ob fered metonty toh coupon Rate bonds
woken drfeiest rete rise Nom of, fu 20/,
@ © @ W S
Spe gna ial Pe ie 4 “Fr
medun} cuyread Pree. nest cop qe
T spietd yeor
-- - 44 --
Bowe... Joe 77 (000 * Sod 49.4 29-74
_--738
20 (Of ee ee 100 2 SUB = -48-4 ci
e _—- - 30:
nn (-) 2 9p OR 0
_ tee!
Dee he Seip cece (OR aLF
_-o----
4... -- tol.
Consider lo- yoo matun bond _
oup en .
exe ge = ta 1 P= -beled
2. 421 toe
Re terg ate ion np
> gr Reet 2 STT- (00 . _ .Yo3=-Yo-3
Pe ep
Some Facets ;
Rese tn jtesed cote P—> Pal ia bond pres | — th vesulb'y bases
4)
on boro whore Gum & mata oy age. longer thea halon periocl-
2) The more distort a bond's maby, 12 sealer Re AC af prices
chenges oth ohowge hy infest fake.
3) Even om hah Inti) raters rete, Its pele d telums can be regetve
't infeed pote mise.
a) for @ distent time Te maturity, He rate c relum con be negative
as a reslt | increase th .tate@st rte. Folutns: Tateress- rete. Make
Meter nd valet af &
The find thet potos ond. bay-Ciem bowdh ore more while
p
thon those for shorter. orm bonds Hene, chenges
make inverdmends m log. lim bonds yor aly This viskinens “q
an asselS selon Met results from interes te fe cherges — fy celled
in taterest fetes
intereat-vele vise
Reinvent Gk. af insted» tale potod 1s jreelu Hon Com
Io medasity of He bond, He investor fs erposed feo Cpe a
interest yato isis Called te-inestmend rib. St occurs became Ha proceeds
fiom He shovke Gym bond Te be seiinested od a fture tater vel. th
is uncorfadn.
The faci Hab two Ions have Beme tern Co mnndeaily cloer wet meen tot
Hoy Dove dome iaterert- ta
its payment od tHe end 4 ten yes whereas a [ole Coupon bonel with
standis) cash paynests before anelinG ot
i sk A ten peer Zero coupon bonel, makes ail
ten yor b matin makes Au
dae.
CHeetive meturily s He Gin medon'ly Hed accoretely manures
Lee thn it is Jor ger Coupon cliscovrt bond.
akele.
interest cob nck, is shor
Since Covgon bond makes cash peyneet> bere malay Coleutaling Duration
~» Fredenek Macou ly NBER qe searcher invented the centapt-
Basic édens As a zen- coupon bond makes no Cash payrost before
the bond matures, Ao tts fective onedoly egal (0 tem 6
mates. He tealizeol teat o Coop bonol ts
