Chapter 3

Question 1

(Monetary Flow)

What is end-of-year convention?

Answer 1

Representing cash flows at the end of a period of time. (versus, say, the beginning)

Question 2

What is nominal interest rate?

Answer 2

The interest rate (can be per month, per year, twice a year, etc) multiplied by a number so that you get years in the denominator

(so you can say 8% compounded biannually instead of the more truthful 4% per half-year which equals 8.16% per year)

Question 3

Effective interest rate

Answer 3

The actual annual interest rate when you do the math properly.

(Interesting alternate definition: EIR = Total interest paid over a year divided by the principal )

Question 4

Effective interest rate

Answer 4

The actual annual interest rate when you do the math properly.

(Interesting alternate definition: EIR = Total interest paid over a year divided by the principal )

Question 5

What is the Yield to Maturity?

Answer 5

Meowww I don’t know!!