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Risk-Free Assets

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Time Value of Money

$100 to be received after one year

is worth less
than the same amount today

2
Type of Interest

Simple Interest Compound Interest

• Deret Aritmetik • Deret Geometri

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Simple Interest

4
Perpetuity

a sequence of payments of
a fixed amount to be made
at equal time intervals and
continuing indefinitely into
the future.

5
Periodic Compounding

6
Continuous Compounding

7
Return on Continuous Compounding

≈
 

Log-linearization

Taylor Appoximation

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How to Compare Compounding Methods

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Zero-Coupon Bonds
• Involves just a single payment
• The issuing institution (for example, a government, a bank or a
company) promises to exchange the bond for a certain amount of
money F, called the face value,on a given day T, called the maturity
date
• The life span of a zero-coupon bond is up to one year,

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Coupon Bonds

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