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Lec 4 MB
Lecture 4
Coupon Bond
• A coupon bond is
identified by four
pieces of information:
1. Face value
2. Agencies that issue
this bond
3. Maturity date
4. The coupon rate
Source: https://en.wikipedia.org/wiki/United_States_Treasury_security
C C C C F
P= + + +. . . + +
1+ i (1+ i )2 (1+ i )3 (1+ i )n (1+ i )n
• Now if the interest rate rises to 8%, but you expect the
inflation rate to be 10% over the course of the year?
• Nominal returns, which do not allow for inflation, are what we have
been referring to as simply “returns.”
Chapter 5
The Behavior of Interest
Rates
Note: Only increases in the variables are shown. The effects of decreases in the variables on the quantity demanded
would be the opposite of those indicated in the rightmost column.