TABLE
OF CONTENTS iii
Unit 2: Financial Markets and Interest Rates
(Continued)
Market Players ............................................................................2-2
Types of Financial Markets........................................................2-2
Money Markets................................................................ 2-3
Capital Markets............................................................... 2-3
Interest Rates...........................................................................................2-5
Calculating Interest Rates ..........................................................2-6
Pure Interest Rate ........................................................... 2-7
Inflation............................................................................. 2-7
Risk................................................................................... 2-8
Term Structure of Interest Rates..............................................2-10
Yield Curve.....................................................................2-10
Normal Yield Curve Theories.......................................2-12
Effect on Stock Prices..............................................................2-14
Unit Summary........................................................................................2-14
Progress Check 2 .................................................................................2-17
Unit 3: Time Value of Money
Introduction...............................................................................................3-1
Unit Objectives ........................................................................................3-1
Future Value ............................................................................................3-2
Calculating Interest Payments ...................................................3-2
Simple Interest.............................................................................3-3
Practice Exercise 3.1 .............................................................................3-5
Compound Interest......................................................................3-9
Discrete Compounding for Annual Periods ................. 3-9
Discrete Compounding for Nonannual Periods......... 3-11
Continuous Compounding ........................................... 3-12
Summary.................................................................................... 3-16
Practice Exercise 3.2 ........................................................................... 3-17
Present Value........................................................................................ 3-21