Theory of Interest

ISBN-10: 0073382442

ISBN-13: 9780073382449

Edition: 3rd 2009

List price: $224.67
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Description: The third edition of The Theory of Interest is significantly revised and expanded from previous editions. The text covers the basic mathematical theory of interest as traditionally developed. The book is a thorough treatment of the mathematical theory and practical applications of compound interest, or mathematics of finance. The pedagogical approach of the second edition has been retained in the third edition. The textbook narrative emphasizes both the importance of conceptual understanding and the ability to apply the techniques to practical problems. The third edition has considerable updates that make this book relevant to students in this course area.

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Book details

List price: $224.67
Edition: 3rd
Copyright year: 2009
Publisher: McGraw-Hill Higher Education
Publication date: 2/7/2008
Binding: Hardcover
Pages: 660
Size: 6.75" wide x 9.25" long x 1.25" tall
Weight: 2.552
Language: English

The measurement of interest
The accumulation and amount functions
The effective rate of interest
Simple interest
Compound interest
Present value
The effective rate of discount
Nominal rates of interest and discount
Forces of interest and discount
Varying interest
Summary of results
Appendix 1
Simple interest for fractional periods
Compound interest for fractional periods
Solution of problems in interest
The basic problem
Equations of value
Unknown time
Unknown rate of interest
Determining time periods
Practical examples
Appendix 2
Derivation involving method of equated time
Basic annuities
Annuity values on any date
Unknown time
Unknown rate of interest
Varying interest
Annuities not involving compound interest
Appendix 3
Approximate formula for unknown rate of interest
More general annuities
Differing payment and interest conversion periods
Annuities payable less frequently than interest is convertible
Annuities payable more frequently than interest is convertible
Continuous annuities
Payments varying in arithmetic progression
Payments varying in geometric progression
More general varying annuities
Continuous varying annuities
Summary of results
Appendix 4
Other formulas for annuities payable more frequently than interest is convertible
Alternative approach for payments varying in arithmetic progression
Amortization schedules and sinking funds
Finding the outstanding loan balance
Amortization schedules
Sinking funds
Differing payment periods and interest conversion periods
Varying series of payments
Amorization with continuous payments
Step-rate amounts of principal
Bonds and other securities
Types of securities
Price of a bond
Premium and discount
Valuation between coupon payment dates
Determination of yield rates
Callable and putable bonds
Serial bonds
Some generalizations
Other securities
Valuation of securities
Appendix 6
Derivation of the bond salesman's formula
Yield rates
Discounted cash flow analysis
Uniqueness of the yield rate
Reinvestment rates
Interest measurement of a fund
Time-weighted rates of interest
Portfolio methods and investment year methods
Short sales
Capital budgeting - basic techniques
Capital budgeting - other techniques
Appendix 7
Uniqueness of the yield rate
Further analysis of the simple interest assumption in Section 7.5
Interest measurement using continuous functions
Practical applications
Truth in lending
Automobile financing
Real estate mortgages
Approximate methods
Depreciation methods
Capitalized cost
Modern financial instruments
More advanced financial analysis
An economic rationale for interest
Determinants of the level of interest rates
Recognition of inflation
Consideration of expenses
Effect of taxes
Currency exchange rates
Reflecting risk and uncertainty
Interest rate assumptions
The term structure of interest rates
Yield curves
Spot rates
Relationship with bond yields
Forward rates
A continuous model
Duration, convexity and immunization
Interest sensitive cash flows
Analysis of portfolios
Matching assets and liabilities
Full immunization
A more general model
Appendix 11
Further analysis of varying annuities
Stochastic approaches to interest
Independent rates of interest
The lognormal model
Time series models
Binomial lattices
Continuous stochastic models
Scenario testing
More advanced models
Appendix 12
Derivation of the variance of annuity
Options and other derivatives
Definitions and concepts
Position and profit diagrams
Determinants of option value
Combination positions
Binomial lattices
Black-Scholes formula
Some extensions
Appendix 13
Derivation of the Black-Scholes formula
Table numbering the days of the year
Illustrative mortgage loan amortization schedule
Basic mathematical review
Statistical background
Iteration methods
Answers to the exercises
Glossary of notation
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