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.
Regional Trading Arrangements: You have seen in earlier Units that India has been playing an active role in WTO discussions. While Hong Kong WTO Ministerial has saved and kept
FDI Inflows - An Appraisal: A comparison of the magnitude of FDI inflows received by India would appear too small, especially when compared to the inflows received by other co
Q. Explain the Says Law? GDP, and Say's Law Aggregate supply Y S = f(L, K) in the classical model where L is concluded in the labor market while K is
Consider the following simple economy which consists of two industries, guns (1) and butter (2) and is characterized by the following input-output matrix. Suppose also that
1. Suppose the demand for a product is given by QD = 2000 - 25P. a) Calculate the Price Elasticity of Demand when the price is $30. b) What price should the firm charge if it
Flossy has a quasi-linear utility function, 16q1^0.5 + q2. The price of good 1 is fixed at one. Thus, Flossy's budget constraint is q1 + p2q2 =Y, where Y denotes income. 6.1 Compu
Q. Describe Exports and imports in AS-AD model? Exports and imports. This is more difficult to justify owing to exchange rate. Suppose that we have a flexible exchange rate a
An increase in growth rates will cause the production possibilities curve to a. shift inward. b. become steeper. c. become flatter. d. shift outward.
Suppose that Michael and Dwight each have a $60 weekly entertainment budget. They pay the same prices for two goods, "an evening reading books" (an ERB) and "an evening of beer and
What is Gross National Product? Gross National Product (GNP): It measures the value of output produced through a country is citizens anywhere within the world, in a speci
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