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An interest rate, \(r\), is the cost of borrowing money or the return earned as a reward for lending money. The interest rates in an economy are determined by the interaction of the demand and supply of the available funds….

A swap is an agreement between two counterparties to exchange cash flows in the future. The counterparties are the two parties that participate in the swap transaction. An interest rate swap is a scheme where you exchange a payment stream…

Suppose that an organization, at a valuation of interest \(i\), has a present value of liabilities \(V(i)_L\) and the present value of the assets \(V(i)_A\). If it were possible to select a portfolio of assets that generates cash flows that…

1. Yield Rate An interest is referred to as yield rate or the internal rate of return (IRR) if it gives the return an investor can earn from an investment. In other word equates the present value of cash inflows…

A bond is a financial instrument which promises to pay interest payments at the stated future time over a period of time (term of the bond) and pay lump sum value also called Redemption value at the end of the…

Introduction A loan can be considered a compound interest transaction where the amount borrowed (Principal) is paid by regular payments at a fixed rate of interest for a predetermined period (term of the loan). The payment of the loan can…

Definition and Terminology An annuity is a series of regular payments. It is described as certain if it is payable for a known period of time (term of an annuity which can be an integer or not), and it is…

Interest can be explained as the reward paid by the borrower of an asset that is owned by a lender usually expressed as a percentage and hence the name interest rate or rate of interest. The money that the borrower…