Already have an account? Get multiple benefits of using own account!
Login in your account..!
Remember me
Don't have an account? Create your account in less than a minutes,
Forgot password? how can I recover my password now!
Enter right registered email to receive password!
Calculating interest rates on a yearly basis
If maturity is different from one year, interest rate is generally recalculated to a corresponding one year rate. For instance consider a bond which matures in six months, has a nominal amount of 25,000 and a current price of 24,200 (no coupons). Six month interest rate is then 800/24,200 = 3.3%. If we want to express this rate as an annual rate we imagine that we make this investment twice.
Our return would be then 1.033. 1.033 = 1.067 or 6.7%. Note that if interest rate is fairly low, then yearly interest rate is approximately two times the six month interest rate. Similarly the monthly interest rate is approximately one twelfth of the yearly interest rate.
Keep in mind that six month interest rate, recalculated to a yearly rate will characteristically not be equal to the one year interest rate. For instance, suppose that we expect interest rates to increase. In such a case, yearly interest rate would be an average of current six month rate and six month rate six months from now, that is expected to be higher. Henceforth one year rate would be higher than current six month rate. Similarly if we expect interest rates to fall then shorter interest rates would be higher than longer interest rates.
This means that we have many different market rates in a country - rates depending on maturity. Although rates with different maturity (all recalculated to a yearly rate) required not to be exactly equal, they can't be too different either. This is certainly true for rates with similar maturity. Seven month rate can't deviate far from the six month rate because they are fairly close substitutes.
Give brief Introduction about Interest rate When you borrow money, you usually have to pay a fee for the loan. This fee is often called interest, particularly if the fee is pr
Explain the Economic functions of money - A unit of account In a monetary economy, all prices may be expressed in monetary units which everyone may relate to. Without money,
Using a short-run Phillips Curve, illustrate the change in inflation and unemployment resulting from the increase in profit expectations.
Suppose you are the production manager for Widgets, Inc. Your job is to produce a fixed amount of output at the lowest cost possible. When you take over the position, you find that
Which of the following will cause property crime to increase? a) An increase in jail terms. b) A decrease in personal incomes. c) An increase in the probability of arrest.
What does the United States do better than other countries?
A scientist has been studying the organisms colonising the pilings underneath a wharf in Sydney Harbour. He postulates two factors might make these communities of sponges, worms, a
what is credit multiplir and how does it work
The Transmission Mechanism The mechanism by which the changes in monetary policy affect aggregate demand is called 'transmission mechanism'. Two stages in transmission mechanis
The Russell 2000 is a market index for small cap stocks - What do these changes in P/E ratios over last year tell you about current valuation in small caps and the different market
Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!
whatsapp: +91-977-207-8620
Phone: +91-977-207-8620
Email: [email protected]
All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd