ECO102H1 Lecture Notes - Demand For Money, Ceteris Paribus, Economic Equilibrium
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ECO102H1 Full Course Notes
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Chapter 28: money, interest rates, and economic activity. A bond is a financial asset that promises to make one or more specified payments at specified dates in the future. Present value (pv): the value now of one or more payments or receipts made in the future; often referred to as discounted present value. Present value depends of the interest rate because when we calculate presents value, the interest rate is used to discount the value of the future payments into their present value. Consider an asset that pays in one year"s time. If the interest rate is i% per year, the pv of the asset is. Notice that, ceteris paribus, the pv is negatively related to the interest rate. Suppose a bond pays 10% at the end of each of three years, at which point it is redeemed.
