Interest Rate Mathematics - Part 1
This eCourse consists of three modules. Module 1 looks at the subject of interest calculations in detail, beginning with simple and compound interest before moving on to more difficult calculations involving the comparison of investments with different compounding bases.
The use of different day count conventions in the bond and money markets coupled with the use of different compounding frequencies can make a significant difference to the amount of interest paid or received on an investment or debt instrument. Module 2 looks at how to calculate interest on a bond and market basis and convert from one basis to another, allowing for the use of different compounding frequencies where necessary.
Module 3 uses a scenario to explore how deposit products which have different compounding frequencies and day count bases can be compared by converting them to a common basis.
On completion of this course, you will be able to:
- Identify the key factors that affect the calculation of simple interest
- Calculate compound interest using a stated interest rate, compounding frequency, and investment
- Decompound an interest rate and compare investment opportunities with different compounding bases
- Identify the key day count conventions used in the money markets
- Recognize the main day count conventions used with fixed income securities
- Compare investments which have different day counts and compounding methods
Module 1: Interest Calculations
Topic 1: Simple Calculations
Topic 2: Compound Interest
Topic 3: Payment & Compounding Frequency
Module 2: Day Count Conventions
Topic 1: Money Market Basis
Topic 2: Bond Basis
Topic 3: Day Count Conventions & Compounding Frequencies
Module 3: Scenario - Comparing Deposit Alternatives