The Financial System
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How do we value a stream of future payments?
Present value of the expected income
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PV formula
X / (1 + i)^T
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Price of bond
Discounted present value of coupons + discounted present value of the face value when it matures
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Price of bond formula
Sum of C / (1 + i)^T + F / (1 + I)^T
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Correlation between policy rate and yield
Yield will follow policy rate closely due to arbitrage
Note 
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