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Notes lectures and tutorials Economics of Banking
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Notes of the lectures and tutorials of economics of banking year . Summary
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Notes tutorials:Yield to maturity:
Zero coupon bond, price 1000 and pv is known
Yield to maturity upward sloping:
1) According to the expectation theory, short-term interest rates are expected to rise.
2) According to the liquidity premium theory, investors prefer short-term bonds over long-
term bonds and therefore they require a positive liquidity premium to invest in longer
maturities.
Price for default-free bond that matures after 4 years, 4% coupon face value 1000 =
With risk premium, just add on the I for every year.
Spotrates: of
Tutorial 2.
, Lecture 4.
Dividend discount model, valuations of stocks. (fair value of a stock, as discount model gives
a price for the equity). Problem is that a lot of companies do not pay dividends use
residual income model.
Residual income: measure of “abnormal” earnings. Value = current book value +
discounted value of abnormal earnings.
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