FINS3630 Lecture Notes  Lecture 2: Futures Contract, Commercial Paper, FixedRate Mortgage
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Fi perform maturity intermediation between households & firms. Long term interest rates to firms might be fixed, but deposit interest rates to households vary with market interest rates. If interest rate constant over time & deposits can be rolled over at same rate, this is no risk to bank. Fi might suffer from losses due to interest rate changes. Different measures of effects of interest rate changes. Net worth: difference between market value of assets & liabilities, duration model measures the impact of interest rate changes on net worth, more recent model  probably better/more reliable, based on market value and duration model. Target rate & influences the interest rate through buying & selling treasury bonds. Fi sorts its assets & liabilities according to their maturity into different buckets: one day, >1 day  3 months, >3 months  6 months, >6 months  1 yr, >1 yr  5 yrs, >5 yrs.
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7.37%. 11.05%. 8.32%. 
It ignores cash flows occurring after the payback period. It ignores the time value of money, that is, dollars received in different years are all given the same weight. 
1.82. 2.00. 1.94 
undervalued. overvalued. 
13.92%. 16.34%. 12.17%. 
$221.86. $195.23. $257.35. 
10.82%. 11.76%. 9.64%. 
10 years. 4.58 years. 6.12 years. 
12.04%. 14.93%. 9.15%. 
1.24 years. 1.62 years. 1.15 years.
