WPC H{ԤФRy-vNJ C tprU-s(G||7v*9 c;Qrs %isjkVV ]+)إY)mȫ-;Hl>kʗ&A)׿,QU+~~J`4uۦ# =A,זzy2ͥLRߜסkgw#NGrKq,R 7DǶn@9$_SAS4!ZB6-75SjNμs: ̅A#c7ulAt'P GtVF~>{Ķ:gXx`&]rOd0e/YWcv 3d{ZmC 2 t> 2 (t> 2 Vt>Symbol!- 2 @g= 2 K7- Symbol!- 2 +{ CG Times- 2 S1p & "Systemn-WPWin 6.0/OLE 1.0 Prefix Information Marker Equation i t =V t+1 -V t V t METAFILEPICTt l  .1   & & MathType "- CG Timesb- 2 @0ik 2 KV 2 K`V 2 iV CG Times- 2 t> 2 t> 2 (t> 2 Vt>Symbol!- 2 @g= 2 K7- Symbol!- 2 +{ CG Times- 2 S1p & "Systemn-*OLE*WPC  !  w  .1    & & MathType` CG Timesb- 2 `0V 2 `|ik 2 `V CG Times- 2 t> 2 t> 2 t> Symbol- 2 N+{Symbol- 2 `= 2 `R+ CG Times- 2 1pCG Times- 2 `R1 2 `(~ 2 `R)~ & "Systemn-WPWin 6.0/OLE 1.0 Prefix Information Marker Equation V t+1 =(1+i t )V t     METAFILEPICT  W w  .1    & & MathType` CG Timesb- 2 `0V 2 `|ik 2 `V CG Times- 2 t> 2 t> 2 t> Symbol- 2 N+{Symbol- 2 `= 2 `R+ CG Times- 2 1pCG Times- 2 `R1 2 `(~ 2 `R)~ & "Systemn-*OLE*WPC` ` !`    .1   `&  & MathType "- CG Timesb- 2 @0V 2 KV 2 iik CG Times- 2 t> 2 t> 2 t>Symbol- 2 @= 2 i+ Symbol- 2 $+{ CG Times- 2 1pCG Times- 2 i1 2 i$(~ 2 i)~ & "Systemn-WPWin 6.0/OLE 1.0 Prefix Information Marker Equation V t =V t+1 (1+i t )  `$$ METAFILEPICT!t$!   .1   `&  & MathType "- CG Timesb- 2 @0V 2 KV 2 iik CG Times- 2 t> 2 t> 2 t>Symbol- 2 @= 2 i+ Symbol- 2 $+{ CG Times- 2 1pCG Times- 2 i1 2 i$(~ 2 i)~ & "Systemn-(xj$0  0` (#(#0 ` (#` (#2 e(  0  )3  0 (# (#*OLE*WPC  ` ` !`  d  .1   `&  & MathType CG Timesb- 2 0V 2 ik 2  ik 2  V 2 lik 2  V 2 _0V 2 _ik 2 _>V CG Times- 2 t> 2 _ t> 2 t> 2 t> 2  t> Symbol- 2 N+{ 2 N+{Symbol- 2 = 2 v+ 2 { + 2  = 2 B+ 2 _= 2 _v+ CG Times- 2 2p 2 n2p 2 2p 2 2pCG Times- 2 v1 2 {1 2 B1 2 _v1 2 (~ 2 )[(~~~ 2  )~ 2  ]~ 2 (~ 2 )~ 2 _(~ 2 _)~ & "Systemn-WPWin 6.0/OLE 1.0 Prefix Information Marker  Equation V t+2 =(1+i)[(1+i)V t ]=(1+i) 2 V t V t+2 =(1+i) 2 V tV 2  METAFILEPICTv&v d  .1   `&  & MathType CG Timesb- 2 0V 2 ik 2  ik 2  V 2 lik 2  V 2 _0V 2 _ik 2 _>V CG Times- 2 t> 2 _ t> 2 t> 2 t> 2  t> Symbol- 2 N+{ 2 N+{Symbol- 2 = 2 v+ 2 { + 2  = 2 B+ 2 _= 2 _v+ CG Times- 2 2p 2 n2p 2 2p 2 2pCG Times- 2 v1 2 {1 2 B1 2 _v1 2 (~ 2 )[(~~~ 2  )~ 2  ]~ 2 (~ 2 )~ 2 _(~ 2 _)~ & "Systemn- *OLE*(3$ !  WPC!   .1  & & MathType "-f CG Timesb- 2 @0V 2 KV 2 iik CG Times- 2 t> 2 t>Symbol!- 2 @= 2 i+ Symbol!- 2 9+{ CG Times- 2 2p 2 2pCG Times- 2 i1 2 i$(~ 2 i-)~ & "Systemn-WPWin 6.0/OLE 1.0 Prefix Information Marker  Equation V t =V t+2 (1+i) 2  METAFILEPICT$h   .1  & & MathType "-f CG Timesb- 2 @0V 2 KV 2 iik CG Times- 2 t> 2 t>Symbol!- 2 @= 2 i+ Symbol!- 2 9+{ CG Times- 2 2p 2 2pCG Times- 2 i1 2 i$(~ 2 i-)~ & "Systemn-"#*OLE*WPC  !  w  .1    & & MathType` CG Timesb- 2 `0V 2 `|ik 2 `V CG Times- 2 t> 2 t> 2 t> Symbol- 2 N+{Symbol- 2 `= 2 `R+ CG Times- 2 1pCG Times- 2 `R1 2 `(~ 2 `R)~ & "Systemn-WPWin 6.0/OLE 1.0 Prefix Information Marker Equation V t+1 =(1+i t )V t     METAFILEPICT  W w  .1    & & MathType` CG Timesb- 2 `0V 2 `|ik 2 `V CG Times- 2 t> 2 t> 2 t> Symbol- 2 N+{Symbol- 2 `= 2 `R+ CG Times- 2 1pCG Times- 2 `R1 2 `(~ 2 `R)~ & "Systemn-%&*OLE*WPC  ! 8   .1    &  & MathType` CG Timesb- 2 `0V 2 `ik 2 `V CG Times- 2 t> 2 t> 2  t> Symbol- 2 N+{ 2 U+{ 2  +{Symbol- 2 `= 2 `v+ CG Times- 2 2p 2 1p 2 m 1pCG Times- 2 `v1 2 `(~ 2 `\)~ & "Systemn-WPWin 6.0/OLE 1.0 Prefix Information Marker Equation V t+2 =(1+i t+1 )V t+1   METAFILEPICTC >C W   .1    &  & MathType` CG Timesb- 2 `0V 2 `ik 2 `V CG Times- 2 t> 2 t> 2  t> Symbol- 2 N+{ 2 U+{ 2  +{Symbol- 2 `= 2 `v+ CG Times- 2 2p 2 1p 2 m 1pCG Times- 2 `v1 2 `(~ 2 `\)~ & "Systemn-(**OLE*WPC  !    .1   & T & MathType CG Timesb- 2 Q0V 2 Q|ik 2 QnV 2 0V 2 ik 2 V CG Times- 2 t> 2 6t> 2 @t> 2 @Zt> Symbol- 2 N+{ 2 @N+{ 2 @+{Symbol- 2 Q= 2 QR+ 2 = 2 v+ CG Times- 2 1p 2 @2p 2 @( 1pCG Times- 2 QR1 2 v1 2 Q(~ 2 Q)~ 2 (~ 2 )~ & "Systemn-(3$ !  WPWin 6.0/OLE 1.0 Prefix Information Marker  Equation V t+1 =(1+i)V t V t+2 =(1+i)V t+1thType  METAFILEPICT  M   .1   & T & MathType CG Timesb- 2 Q0V 2 Q|ik 2 QnV 2 0V 2 ik 2 V CG Times- 2 t> 2 6t> 2 @t> 2 @Zt> Symbol- 2 N+{ 2 @N+{ 2 @+{Symbol- 2 Q= 2 QR+ 2 = 2 v+ CG Times- 2 1p 2 @2p 2 @( 1pCG Times- 2 QR1 2 v1 2 Q(~ 2 Q)~ 2 (~ 2 )~ & "Systemn-,-*OLE*WPCLL!!!! _  .1  !&  & MathType "-] P V  CG Timesb- 2 @0V 2 KS 2 iik 2 Ks S 2 i ik 2 JfS 2 iik 2 IS 2 iik 2 JS 2 iik CG Times- 2 t> 2 t> 2 & t> 2 t> 2 t> 2 t>Symbol- 2 @= 2 i+ 2 @#+ 2 i + 2 @ + 2 i+ 2 @+ 2 @+ 2 i+ 2 @+ 2 io+ Symbol- 2 +{ 2 | +{ 2 o+{ 2 (+{ 2 +{ CG Times- 2 i1p 2  2p 2  2p 2 3p 2 3p 2 9p 2 9p 2 10pp 2 10ppCG Times- 2 i1 2 i1 2 i1 2 i1 2 io1 2 i$(~ 2 i-)~ 2 ik(~ 2 it )~ 2 i^(~ 2 ig)~ 2 @.~ 2 @.~ 2 @.~ 2 i(~ 2 i )~ 2 i(~ 2 i)~ & "Systemn-WPWin 6.0/OLE 1.0 Prefix Information Marker  Equation V t =S t+1 (1+i)+S t+2 (1+i) 2 +S t+3 (1+i) 3 +...+S t+9 (1+i) 9 +S t+10 (1+i) 10 2 K METAFILEPICTa$a$h _  .1  !&  & MathType "-] P V  CG Timesb- 2 @0V 2 KS 2 iik 2 Ks S 2 i ik 2 JfS 2 iik 2 IS 2 iik 2 JS 2 iik CG Times- 2 t> 2 t> 2 & t> 2 t> 2 t> 2 t>Symbol- 2 @= 2 i+ 2 @#+ 2 i + 2 @ + 2 i+ 2 @+ 2 @+ 2 i+ 2 @+ 2 io+ Symbol- 2 +{ 2 | +{ 2 o+{ 2 (+{ 2 +{ CG Times- 2 i1p 2  2p 2  2p 2 3p 2 3p 2 9p 2 9p 2 10pp 2 10ppCG Times- 2 i1 2 i1 2 i1 2 i1 2 io1 2 i$(~ 2 i-)~ 2 ik(~ 2 it )~ 2 i^(~ 2 ig)~ 2 @.~ 2 @.~ 2 @.~ 2 i(~ 2 i )~ 2 i(~ 2 i)~ & "Systemn-)M -, dc($0  0` (#(#0 ` (#` (#0 (# (#2 e(  a  )3  0h(#(#($0  0` (#(#0 ` (#` (#0 (# (#0h(#(#0h(#h(#0(#(#2 e  a  )3  0p(#(#23*OLE*WPC!J   .1  &` & MathType "-l _ R CG Timesb- 2 @FP 2 KuC 2 ihik 2 K C 2 i ik 2 KFV 2 iik CG Times- 2 bp 2 t> 2 it> 2  t> 2 Gt> CG Times- 2 m,ICG Times- 2 i(~ 2 i)~ 2 i (~ 2 i& )~ 2 i(~ 2 i)~Symbol- 2 @= 2 i>+ 2 @+ 2 i + 2 @ + 2 ix+ Symbol- 2 +{ 2 J +{ 2 +{ CG Times- 2 71p 2  2p 2  2p 2 '2p 2 2pCG Times- 2 i>1 2 i 1 2 ix1 & "Systemn-WPWin 6.0/OLE 1.0 Prefix Information Marker Equation P b,t =C t+1 (1+i)+C t+2 (1+i) 2 +FV t+2 (1+i) 2_  METAFILEPICTPh   .1  &` & MathType "-l _ R CG Timesb- 2 @FP 2 KuC 2 ihik 2 K C 2 i ik 2 KFV 2 iik CG Times- 2 bp 2 t> 2 it> 2  t> 2 Gt> CG Times- 2 m,ICG Times- 2 i(~ 2 i)~ 2 i (~ 2 i& )~ 2 i(~ 2 i)~Symbol- 2 @= 2 i>+ 2 @+ 2 i + 2 @ + 2 ix+ Symbol- 2 +{ 2 J +{ 2 +{ CG Times- 2 71p 2  2p 2  2p 2 '2p 2 2pCG Times- 2 i>1 2 i 1 2 ix1 & "Systemn-56*OLE*WPC    !  u  .1    &@  & MathType "-'  CG TimesE- 2 @8h 2 KP 2 KXC 2 KP 2 iP CG Times- 2 wt> 2  t> 2 t>Symbol- 2 @a= 2 K*+ 2 K- Symbol- 2 +{ CG Times- 2 E1p & "Systemn-WPWin 6.0/OLE 1.0 Prefix Information Marker Equation h=P t+1 +C-P t P t    METAFILEPICT t  u  .1    &@  & MathType "-'  CG TimesE- 2 @8h 2 KP 2 KXC 2 KP 2 iP CG Times- 2 wt> 2  t> 2 t>Symbol- 2 @a= 2 K*+ 2 K- Symbol- 2 +{ CG Times- 2 E1p & "Systemn-89*OLE*WPCLL  ! ^ .  .1   &  & MathType "-l   CG TimesE- 2 @FP 2 KuC 2 ihik 2 Kn FV 2 i ik CG Times- 2 bp 2 t> 2 it> 2  t> CG Times- 2 m,ICG Times- 2 i(~ 2 i)~ 2 i (~ 2 i& )~Symbol- 2 @= 2 i>+ 2 @+ 2 i + Symbol- 2 +{ 2 f +{ CG Times- 2 71p 2  1pCG Times- 2 i>1 2 i 1 & "Systemn-WPWin 6.0/OLE 1.0 Prefix Information Marker Equation P b,t =C t+1 (1+i)+FV t+1 (1+i)MathType  METAFILEPICTTdTh .  .1   &  & MathType "-l   CG TimesE- 2 @FP 2 KuC 2 ihik 2 Kn FV 2 i ik CG Times- 2 bp 2 t> 2 it> 2  t> CG Times- 2 m,ICG Times- 2 i(~ 2 i)~ 2 i (~ 2 i& )~Symbol- 2 @= 2 i>+ 2 @+ 2 i + Symbol- 2 +{ 2 f +{ CG Times- 2 71p 2  1pCG Times- 2 i>1 2 i 1 & "Systemn-;<*OLE*WPC! H  .1  & & MathType "-@k CG TimesE- 2 kP$9 2 k,~ 2 k$1 2 kN,~ 2 kw $10 2 k ,~ 2 $10 2 ,~ 2 k(000 2 k000 2 k000 2 000Symbol- 2 k+ 2 kN - & "Systemn-WPWin 6.0/OLE 1.0 Prefix Information Marker Equation $9,000+$1,000-$10,000$10,000 & METAFILEPICTwwh H  .1  & & MathType "-@k CG TimesE- 2 kP$9 2 k,~ 2 k$1 2 kN,~ 2 kw $10 2 k ,~ 2 $10 2 ,~ 2 k(000 2 k000 2 k000 2 000Symbol- 2 k+ 2 kN - & "Systemn->?*OLE*WPC    !  u  .1    &@  & MathType "-'  CG TimesE- 2 @8h 2 KP 2 KXC 2 KP 2 iP CG Times- 2 wt> 2  t> 2 t>Symbol- 2 @a= 2 K*+ 2 K- Symbol- 2 +{ CG Times- 2 E1p & "Systemn-WPWin 6.0/OLE 1.0 Prefix Information Marker Equation h=P t+1 +C-P t P t    METAFILEPICT t  u  .1    &@  & MathType "-'  CG TimesE- 2 @8h 2 KP 2 KXC 2 KP 2 iP CG Times- 2 wt> 2  t> 2 t>Symbol- 2 @a= 2 K*+ 2 K- Symbol- 2 +{ CG Times- 2 E1p & "Systemn-AB*OLE*WPC  ! f  .1  &@ & MathType "-@ CG TimesE- 2 kP$11 2 km,~ 2 k$1 2 k,~ 2 k $10 2 kZ,~ 2 7$10 2 s,~ 2 `X.~ 2 k000 2 kW000 2 k000 2 000 2 `20Symbol- 2 kn+ 2 k - 2 `= & "Systemn-WPWin 6.0/OLE 1.0 Prefix Information Marker  Equation $11,000+$1,000-$10,000$10,000=.20@ & METAFILEPICTh f  .1  &@ & MathType "-@ CG TimesE- 2 kP$11 2 km,~ 2 k$1 2 k,~ 2 k $10 2 kZ,~ 2 7$10 2 s,~ 2 `X.~ 2 k000 2 kW000 2 k000 2 000 2 `20Symbol- 2 kn+ 2 k - 2 `= & "Systemn- d e рTABLE A !  ݛC ## C    Y((  Finance4000MoneyandCapitalMarketsSecondclass   (    8U((d((d8InterestRates        o23  0    InterestRate"definition o݌ (#(# Ќ      A0  23  0` (#(#  Asimpleinterestrateistheexcessoftheamounttobe   receivedinthefuturerelativetotheamountpaidnowAl݌ ` (#` (# Ќ      0  23  0` (#(#  Formula݌` ` (#` (# Ќ   d   dV0  0` (#(#2-3  0 ` (#` (#  h.4$ ` \٧  `/CE  t   hdV݌   (# (# Ќ   d   d0  0` (#(#2-3  0 ` (#` (#  itistheinterestrated݌  (# (# Ќ   d   d0  0` (#(#2-3  0 ` (#` (#  Vtisthevalueinperiodt"todayd݌ (# (# Ќ   d   d0  0` (#(#2-3  0 ` (#` (#  Vtisthevalueinperiodt+1"nextperiodorone C periodinthefutured݌  (# (# Ќ      0  23  0` (#(#  Givenanytwoofthevariablesinthisformula,youcan c# figureouttheotherone ݌ ` (#` (# Ќ       0  23  0` (#(#  Examples 1 ݌'"` (#` (# Ќ   (3$      0  23  0` (#(#  Borrow$100andpayback$105  ݌ ` (#` (# Ќ   d   d 0  0` (#(#2-3  0 ` (#` (#  Vtis$100d ݌  (# (# Ќ   d   d 0  0` (#(#2-3  0 ` (#` (#  Vt+1is$105d ݌P  (# (# Ќ   d   d 0  0` (#(#2-3  0 ` (#` (#  itis.05or5percent"($105$100)/$100d ݌`  (# (# Ќ      0  23  0` (#(#  Borrow$100at5percent݌@` (#` (# Ќ   d   d0  0` (#(#2-3  0 ` (#` (#  Vtis$100d݌ (# (# Ќ   d   d0  0` (#(#2-3  0 ` (#` (#  itis5percent"or.05d݌p (# (# Ќ   d   d0  0` (#(#2-3  0 ` (#` (#  Vt+1is$105d݌0  (# (# Ќ   d   d0  0` (#(#2-3  0 ` (#` (#  oftensay payback$100andinterestpaymentof "@ $5"d݌  (# (# Ќ   d   d0  0` (#(#2-3  0 ` (#` (#  h.4$ ` \-D `. E %DD %Dhd݌%! (# (# Ќ   *% Ї    0  23  0` (#(#  Ifwillingtopay$105ayearfromnowandtheinterest   rateis5percent,howmuchcanyouborrow?>݌ ` (#` (# Ќ   d   dJ0  0` (#(#2-3  0 ` (#` (#  Vt+1is$105dJu݌  (# (# Ќ   d   d=0  0` (#(#2-3  0 ` (#` (#  itis5percentor.05d=h݌ @ (# (# Ќ   d   d80  0` (#(#2-3  0 ` (#` (#  Vtis$105d8c݌P  (# (# Ќ   d   d)0  0` (#(#2-3  0 ` (#` (#  h.4$ ` \-T `/TE T9T Thd)T݌  (# (# Ќ   d   dk0  0` (#(#2-3  0 ` (#` (#  adsontvdk݌ [  (# (# Ќ   j   jM0  0` (#(#0 ` (#` (#23  0 (# (#  Ifyouhaveastructuredsettlementcomingin k  abunchofsmallpayments,wewillgiveyouonelargepaymentnow.jMx݌ (#(# Ќ   j   j0  0` (#(#0 ` (#` (#23  0 (# (#  Howmuch?j݌(#(# Ќ   d   d0  0` (#(#2-3  0 ` (#` (#  Givensomeinterestrate,youwillgetthepresent K valueofthefuturepaymentsd݌ (# (# Ќ      0  23  0` (#(#  Presentvalue*݌"` (#` (# Ќ   d   d0  0` (#(#2-3  0 ` (#` (#  Thepresentvalueofanamounttobereceivedin %  thefutureisthevaluetodayofthatpayment.d ݌  (# (# Ќ   d   d!0  0` (#(#2-3  0 ` (#` (#  Adollarinthefutureisnotworthasmuchasa )$ dollartodayd!E!݌ +[& (# (# Ќ        F"23  0    Whatifthereismorethanonepayment? F"q"݌p(#(# Ќ        ##23  0    Compoundinterest ##N#݌ (#(# Ќ      #0  23  0` (#(#  Supposethatwehave$100andwelenditat5percent P  peryearfortwoyears#$݌ ` (#` (# Ќ       %0  23  0` (#(#  Howmuchshouldwegetattheendoftwoyears? %6%݌  ` (#` (# Ќ      &0  23  0` (#(#  Attheendofoneyear,weareowed$105&/&݌@` (#` (# Ќ   d   d&0  0` (#(#2-3  0 ` (#` (#  theoriginal$100plus5percentinterestd&'݌P (# (# Ќ      '0  23  0` (#(#  Wearewillingtolendourfundsforanadditionalyear'#(݌p` (#` (# Ќ   d   d(0  0` (#(#2-3  0 ` (#` (#  fromt+1tot+2d(")݌  (# (# Ќ   d   d)0  0` (#(#2-3  0 ` (#` (#  say2000to2001d)*݌0  (# (# Ќ      *0  23  0` (#(#  Iftheinterestrateis5percent,thenin2001,weshould P$ getour$105plus5percentinterest*+݌ ` (#` (# Ќ   d   d ,0  0` (#(#2-3  0 ` (#` (#  $105+.05!$105=$105+$5.25=$110.25d ,4,݌'`" (# (# Ќ   d   d -0  0` (#(#2-3  0 ` (#` (#  not$105+$5d -6-݌p(# (# (# Ќ   d   d-0  0` (#(#2-3  0 ` (#` (#  $.25isinterestontheinterestfromthefirstyeard-.݌ ) % (# (# Ќ      .0  23  0` (#(#  Theformulaforthisisdeterminedthefollowingway.)/݌` (#` (# Ќ   d   d/0  0` (#(#2-3  0 ` (#` (#  h.!4$ ` \- `. E y yhd/&0݌p (# (# Ќ   d   d=10  0` (#(#2-3  0 ` (#` (#  andforthenextperiod,thisisd=1h1݌z  (# (# Ќ   d   d720  0` (#(#2-3  0 ` (#` (#  h.$4$ ` \- `/E C  C hd72b2݌:  (# (# Ќ   d   dy30  0` (#(#2-3  0 ` (#` (#  Forsimplicity,supposethattheinterestrateis D  constantatidy33݌  (# (# Ќ   d   d40  0` (#(#2-3  0 ` (#` (#  Thenh.'4$ ` \`I `.Edaadahd44݌d  (# (# Ќ   d   d50  0` (#(#2-3  0 ` (#` (#  Andsubstitutingthesecondintothefirstd5%6݌  (# (# Ќ   d   d60  0` (#(#2-3  0 ` (#` (#  h.4$ ` \ L `.iE %L%K %Lhd6)7݌ (# (# Ќ      A80  23  0` (#(#  Thesamepropositionholdsforthisequationasforthe %  simpleoneA8l8݌ ` (#` (# Ќ   d   dX90  0` (#(#2-3  0 ` (#` (#  Givenanytwoofthevariablesinthisformula,you )% canfigureouttheotheronedX99݌+b& (# (# Ќ      :0  23  0` (#(#  Theformulaforthepresentvalueofapaymenttwo  periodsfromtodayis::݌ ` (#` (# Ќ     `  h.4 $ ` \-T `/TE T\TD Th       T<0  23  0` (#(#  Indicateshowmuchwillingtopayforapaymenttwo +{  yearsfromnowgivenaninterestrateofiT<<݌ ` (#` (# Ќ        =23  0    Morethantwopaymentsina structuredsettlement? ==݌K (#(# Ќ      >0  23  0` (#(#  Justaddupthepresentvalueofeachofthepayments>>݌ [ ` (#` (# Ќ   d   d?0  0` (#(#2-3  0 ` (#` (#  LetSt+1bethestructuredsettlementpaymentin   periodt+1d??݌+{  (# (# Ќ   d   d@0  0` (#(#2-3  0 ` (#` (#  St+2bethepaymentinperiodt+2d@@݌ (# (# Ќ   d   dA0  0` (#(#2-3  0 ` (#` (#  andsoforthdAA݌; (# (# Ќ   d   dB0  0` (#(#2-3  0 ` (#` (#  Thepresentvalueofastructuredsettlementfor10  periodsisdBB݌  (# (# Ќ      C0  23  0` (#(#  h.+4 $ ` \̤" `.E` ""` ""hCC݌"` (#` (# Ќ   d   dD0  0` (#(#2-3  0 ` (#` (#  Worksforanynumberofyears"10,4,or99dD*E݌L'" (# (# Ќ   d   dF0  0` (#(#2-3  0 ` (#` (#  Samepaymentseveryyear,couldgetridof (# subscriptsonthepayment"justuseSdF2F݌ *\% (# (# Ќ   l+&   FinancialMarkets"Bonds        G23  0    Couponbond GG݌p(#(# Ќ      YH0  23  0` (#(#  Priceofbond"howmuchispaidforitYHH݌0 ` (#` (# Ќ      LI0  23  0` (#(#  MaturityLIwI݌ @` (#` (# Ќ   d   dJ0  0` (#(#2-3  0 ` (#` (#  Thematurityofabondisthetimeuntilthelast   paymentdJHJ݌  (# (# Ќ   j   j;K0  0` (#(#0 ` (#` (#23  0 (# (#  Forexample,abondmighthave20yearsto p  maturityfromtodayj;KfK݌ (#(# Ќ      wL0  23  0` (#(#  CouponpaymentwLL݌@` (#` (# Ќ   d   dNM0  0` (#(#2-3  0 ` (#` (#  Thecouponpaymentonabondisaperiodic  paymentmadeonabonduntilmaturitydNMyM݌  (# (# Ќ   j   jN0  0` (#(#0 ` (#` (#23  0 (# (#  Abondmightpay$500peryearuntil p maturityjNN݌ (#(# Ќ      O0  23  0` (#(#  FacevalueOO݌!` (#` (# Ќ   d   dP0  0` (#(#2-3  0 ` (#` (#  ThefacevalueonabondisafinalpaymentdPP݌P$ (# (# Ќ   j   jQ0  0` (#(#0 ` (#` (#23  0 (# (#  Abondmighthaveafacevalueof$1000jQQ݌%!(#(# Ќ      R0  23  0` (#(#  Whatisinterestrateonfundsifholdbondtomaturity?RR݌p(#` (#` (# Ќ      S0  23  0` (#(#  Theinterestrateonfundsifthebondisheldtomaturity ) % iscalledtheyieldtomaturitySS݌0+&` (#` (# Ќ   d   dT0  0` (#(#2-3  0 ` (#` (#  Theyieldtomaturityistheinterestratethat ` equatesthepresentvalueofpaymentsreceivedfromacreditmarketinstrumentwithitsvaluetodaydTU݌  (# (# Ќ      hV0  23  0` (#(#  Example"OneyearbondhVV݌ @` (#` (# Ќ   d   dJW0  0` (#(#2-3  0 ` (#` (#  apriceof$9000dJWuW݌P  (# (# Ќ   d   d3X0  0` (#(#2-3  0 ` (#` (#  acouponpaymentof$500peryeard3X^X݌  (# (# Ќ   d   d-Y0  0` (#(#2-3  0 ` (#` (#  afacevaluepaymentof$10000d-YXY݌`  (# (# Ќ   d   d$Z0  0` (#(#2-3  0 ` (#` (#  Whatisinterestrateonfunds?d$ZOZ݌p  (# (# Ќ   d   d[0  0` (#(#2-3  0 ` (#` (#  ݢi=($10000+$500$9000)/$9000=.1666...d[G[݌   (# (# Ќ   j   j\0  0` (#(#0 ` (#` (#23  0 (# (#  or16.66...percentj\F\݌0 (#(# Ќ      ]0  23  0` (#(#  Twoyearbond"twoyearstomaturity]J]݌@` (#` (# Ќ   d   d^0  0` (#(#2-3  0 ` (#` (#  h.14 $ ` \̤ " `. E _"_! _" hd^;^݌ (# (# Ќ   d   dR_0  0` (#(#2-3  0 ` (#` (#    SolveforyieldtomaturityidR_}_݌1 (# (# Ќ       Otherkindsofbonds        `23  0    Treasurybills ``݌0 (#(# Ќ      da0  23  0` (#(#  Issuedasdiscountsecuritiesdaa݌ @` (#` (# Ќ   d   dIb0  0` (#(#2-3  0 ` (#` (#  OnlyonepaymentdIbtb݌P  (# (# Ќ      3c0  23  0` (#(#  Termtomaturitywhenissuedof90,180or360days3c^c݌` ` (#` (# Ќ        /d23  0    STRIPS /dZd݌  (#(# Ќ      d0  23  0` (#(#  SeparatelyTradedRegisteredInterestandPrincipal   Securitiesde݌ ` (#` (# Ќ      e0  23  0` (#(#  Takeacouponbondandbreakitintosinglepaymentse(f݌` (#` (# Ќ      f0  23  0` (#(#  Forexample,twoyearbond(oftencalledanote)f%g݌p` (#` (# Ќ   d   dg0  0` (#(#2-3  0 ` (#` (#  twocouponpaymentsof$1000dgh݌  (# (# Ќ   j   jh0  0` (#(#0 ` (#` (#23  0 (# (#  oneinJanuary2000jhi݌0 (#(# Ќ   j   ji0  0` (#(#0 ` (#` (#23  0 (# (#  oneinJanuary2001jij݌!(#(# Ќ   d   dj0  0` (#(#2-3  0 ` (#` (#  facevalueof$10,000paidinJanuary2001djk݌"@ (# (# Ќ      k0  23  0` (#(#  Takebondapartinto3discountbondskl݌%!` (#` (# Ќ   d   dl0  0` (#(#2-3  0 ` (#` (#  Onepaying$1000inJanuary2000dl m݌'`" (# (# Ќ   d   dm0  0` (#(#2-3  0 ` (#` (#  Onepaying$1000inJanuary2001dmn݌p(# (# (# Ќ   d   dn0  0` (#(#2-3  0 ` (#` (#  Onepaying$10,000inJanuary2001dnn݌) % (# (# Ќ      o0  23  0` (#(#  Whycreateastrip?oo݌0+&` (#` (# Ќ   d   dp0  0` (#(#2-3  0 ` (#` (#  Forexample,someonemayhavecontractrequiring ` thattheypay$10,000inJanuary2002dpp݌  (# (# Ќ   d   dq0  0` (#(#2-3  0 ` (#` (#  Canbuybondandguaranteethattheycanmake 0  paymentdqr݌  (# (# Ќ   d   dr0  0` (#(#2-3  0 ` (#` (#  Moregenerally,canputtogetheranystreamof P  receiptsthatisconvenientdr)s݌  (# (# Ќ   d   d.t0  0` (#(#2-3  0 ` (#` (#  Calledzeroesd.tYt݌p  (# (# Ќ        u23  0    Stateandlocalbonds uAu݌ (#(# Ќ      u0  23  0` (#(#  Typicallynotsubjecttofederalincometaxorstate P incometaxifstateofresidenceu v݌ ` (#` (# Ќ         w23  0    Privatebonds  w5w݌p(#(# Ќ      w0  23  0` (#(#  Higherriskthanfederalgovernmentww݌0 ` (#` (# Ќ       x0  23  0` (#(#  Thehighertherisk,thehighertheyieldxx݌"@` (#` (# Ќ   P$        y23  0    Returnfromholdingabond yy݌`(#(# Ќ        z23  0         {0  23  0` (#(#  Reallyappliestoanyasset {4{݌ ` (#` (# Ќ       {0  23  0` (#(#  Oftencalledtheholdingperiodreturn{|݌ ` (#` (# Ќ       |0  23  0` (#(#  Theholdingperiodreturnistherateofreturnreceived P  overtheperiodthattheassetisheldincludinganycapitalgainsorlossesontheasset| }݌ ` (#` (# Ќ       I~0  23  0` (#(#  Lethbetheholdingperiodreturnfromholdingabond    fromttot+1I~t~݌0 ` (#` (# Ќ   d    d|0  0` (#(#2-3  0 ` (#` (#  Theholdingperiodreturnforoneperiodis @ h.44 $ ` \, `/xE P,+ P, hd|݌P (# (# Ќ   d    d0  0` (#(#2-3  0 ` (#` (#  Foroneperiod,itisjustd)݌+ (# (# Ќ   j    j0  0` (#(#0 ` (#` (#23  0 (# (#  paymentreceivedj݌;(#(# Ќ   j    j0  0` (#(#0 ` (#` (#23  0 (# (#  lesspaymentsmadej݌ (#(# Ќ   j    j0  0` (#(#0 ` (#` (#23  0 (# (#  initialpaymentsmadej݌!K(#(# Ќ   [#      0  23  0` (#(#  Exampleofholdingperiodreturn9݌`` (#` (# Ќ   d    d0  0` (#(#2-3  0 ` (#` (#  Buya20yearbondtodayfor$10,000d"݌  (# (# Ќ   j    j0  0` (#(#0 ` (#` (#23  0 (# (#  couponpaymentof$1000peryearj ݌ (#(# Ќ   j    j0  0` (#(#0 ` (#` (#23  0 (# (#  facevalueof$10,000j0݌ @(#(# Ќ   j    j 0  0` (#(#0 ` (#` (#23  0 (# (#  yieldtomaturityis10percentj 6݌ (#(# Ќ   j    j0  0` (#(#0 ` (#` (#23  0 (# (#  Supposesellitayearfromnowfor$9,000jF݌p (#(# Ќ   j    j60  0` (#(#0 ` (#` (#23  0 (# (#  Theholdingperiodreturnforoneperiodis 0  h.=4 $ ` \, `/xE,+, hj6a݌ (#(# Ќ   j    jό0  0` (#(#0 ` (#` (#23  0 (# (#  Meansthatholdingperiodreturnis0jό݌k(#(# Ќ   /    /0  0` (#(#0 ` (#` (#0 (# (#2*3  0h(#(#  h.:4 $ ` \t ^ `.7 Eh^]h^ h/݌+h(#h(# Ќ   d    dO0  0` (#(#2-3  0 ` (#` (#  Ifsoldbondfor$11,000ayearfromnow,hisdOz݌" (# (# Ќ   j    j]0  0` (#(#0 ` (#` (#23  0 (# (#  h.@4$ ` \t ^ `.7 EX%A^A]X%A^ hj]݌X% (#(# Ќ     `    or20percent  ($ DO       23  0    Bonds,ChangesinInterestRatesandRisk D݌`(#(# Ќ        /23  0    Higherbondpricesareassociatedwithloweryields /Z݌ (#(# Ќ      0  23  0` (#(#  Thepriceofabondequalsthepresentvalueof   paymentsB݌ ` (#` (# Ќ       $0  23  0` (#(#  Foraoneyearbondh.74$ ` \̤ " `. E.. ". !.. "h$O݌ ` (#` (# Ќ       i0  23  0` (#(#  Thebondcontractspecifiesthecouponpaymentsand 1  thefacevaluei݌ ` (#` (# Ќ       0  23  0` (#(#  Changesinthepriceareassociatedwithchangesinthe Q  interestrate(oryieldtomaturity)݌ ` (#` (# Ќ   d    d0  0` (#(#2-3  0 ` (#` (#  Example"oneyearbonddܘ݌q (# (# Ќ   d    d0  0` (#(#2-3  0 ` (#` (#  CouponpaymentequaltozerodЙ݌1 (# (# Ќ   d    d0  0` (#(#2-3  0 ` (#` (#  Facevalueequalto$1,000dƚ݌!A (# (# Ќ   d    d0  0` (#(#2-3  0 ` (#` (#  Ifthepriceofthebondis$900,theinterestrateis $  11.11...percentd݌  (# (# Ќ   d    d0  0` (#(#2-3  0 ` (#` (#  Ifthepriceofthebondis$950,theinterestrateis (!$ about5.26percentd݌  (# (# Ќ   +&        23  0    Ifinterestratesincrease,theyieldtomaturityonexisting  bondsincreases *݌ (#(# Ќ         23  0    Asaresult,increasesininterestrateslowerpricesofexisting   bonds  8݌ (#(# Ќ   d   d0  0` (#(#2-3  0 ` (#` (#  Bondsaresubjecttointerestrateriskd@݌ @ (# (# Ќ   d   d0  0` (#(#2-3  0 ` (#` (#  Thepricesoflongertermbondsdecreasemore   wheninterestratesincreasedA݌  (# (# Ќ   d   dF0  0` (#(#2-3  0 ` (#` (#  ExampledFq݌   (# (# Ќ    PricesoftwobondsFacevalue$10,000andcouponpayment$0  InterestRate0 0 (# (#0h(#(#0h(#h(#Termtomaturity(years)P(#(#    `     h   10  0p(#(#0p(#p(#0 (#(#2 (# (# *wFCGddd Xdd Xdd X(#(#w,( dd ,( dd ,( dd +  >4 `  @5@>5 h^1t"  @5 @ @9524@h9524 ka4t" @9524 @ @9070@k9070 i_4t" @9070 @  $@10$@i10 i_2h"  $@10 $@ @9091@i9091 ka4h" @9091 @ $@8264$@k8264D:8h" $@8264  $@ DChangeinprice0  0h(#(#0h(#h(#$4330p(#(#0p(#p(#0 (#(#$806X! (# (#       ߨ23  0    Foragivenincreaseintheinterestrate,longertermbond $h priceschangemore ߨ ݌ (#(# Ќ        23  0    Empirically,longertermbondpricesaremorevariable ݌8(#(#(#    )$ DO De D        <23  0    Doesthatmeanthatoneshouldholdshorttermbondsforless e  risk? <g݌ (#(# Ќ      J0  23  0` (#(#  FutureshortterminterestratesareunknownJu݌ ` (#` (# Ќ      ?0  23  0` (#(#  Becauseofshortterminterestratesareuncertain,?j݌E ` (#` (# Ќ     ` Shorttermsecuritiesaresubjecttoreinvestmentrisk       0  23  0` (#(#  Reinvestmentriskistheriskthatproceedsfrom `  securitieswillhavetobereinvestedatuncertaininterestratesЮ݌ ` (#` (# Ќ        23  0    Longtermbondsaresubjecttointerestrateriskbecause E  priceschange ݌ (#(# Ќ        23  0    Shorttermbondsaresubjecttointerestrateriskbecauseof e reinvestmentrisk ݌ (#(# Ќ        23  0    Nexttime /݌ (#(# Ќ      ²0  23  0` (#(#  Nominalandrealinterestrates²݌E!` (#` (# Ќ      0  23  0` (#(#  Durationasameasureofthematurityofabondճ݌$` (#` (# Ќ      0  23  0` (#(#  Chapter4"proortofiloliochioice