preview

The Is Simple Interest? How Does Simple And Compounding Interest Differ?

Good Essays
1.What is simple interest? What is compounding interest? How does simple and compounding interest differ?
Simple interest is a quick method of calculating the interest charge on a loan. Compound interest is the addition of interest to the principal sum of a loan or deposit, or in other words, interest on interest. Simple interest includes interest earned on the initial investment only. Compound interest assumes that interest earned is again re-invested at coupon rate.

2. What is meant by “present value”? What is meant by “future value”? How does present value relate to future value?
Present Value" is the present-day value of a sum of money expected to be received at a future date calculated at a specified rate of interest. "Future
…show more content…
Basis Point: The minimum amount of mentioning the revenue on a bond, note, or other debit mechanism.
Yield spread: The yield spread is the variance among the cited return on two diverse reserves, frequently of dissimilar credit worth.

5. Define nominal and real return, how do they differ?
Nominal return is the return that does not factor in inflation, and real return takes inflation into account. Nominal returns in emerging markets are higher, but due to higher inflation in emerging markets economies, real return is closer to the developed world.
6. How do municipal bonds differ from corporate bond? Who is most likely to prefer a municipal bond?
Municipal bonds are issued by state or local municipalities whereas Corporates issue Corporate Bonds. The default risk of Municipal Bonds is generally lower due to state backing them compared to Corporate Bonds where a corporation backs them. So, the public will probably use Municipal Bonds, while those in corporations will use Corporate Bonds.
7. What is the difference between a Treasury bill, note and bond? Which offers the greatest interest rate? (typically)
The duration of these bills, bonds and notes differ from each other. For, example Treasury Bonds have the highest duration of 25 to 30 years, whereas Treasury notes have a duration of 5 to 10 year, and lastly Treasury bills having the lowest duration has a max duration of 1 year. So, the one that offers the greatest interest rate is
Get Access