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Edit this answer was written for the original question, before user completely edited whole question to something completely different and unrelated to original question for some reason: How is it that the coupon rate is higher than the interest rate? How can the coupon rate be higher than the interest rate? Doesn't that mean that after one year, you're ...


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There are practical problems with having 'real loan' even though theoretically they would actually be desirable (as paper "The Impact of Inflation on Long-Term Housing Loans" by Tschach, Ingo E.) if they would be practical. We do not know what the current inflation is. This statement is simply incorrect: Of course we will need to know the ...


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Level (also called stock) variable, is a variable that measures something at a given point of time. For example, measuring GDP in 2017 would be a level (stock) variable. Flow variable is a variable that measures the rate of change in the stock over time. For example, if GDP growth (which measures flow of GDP) was $10\%$ in 2017 that means that the level/...


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Sovereign rates in developed countries represent the credit risk-free curve. What maturity on the curve you want to choose is an analytical choice. The natural rate is in reference to a risk-free curve, and so should align with the sovereign curve. Also, “Natural rate” is somewhat dated at this point, the preference is to use a more neutral term like r*.


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This is because bond prices increase when interest rate falls. A general bond pricing formula can be expressed as as a discounted stream of future cash flows from the coupon and the value of the bond itself. Hence we have: $$ P = \sum^T_{t=1} \frac{C_t}{(1+i)^t}+\frac{M}{(1+i)^T}$$ Where $P$ is the price of the bond, $C$ is the coupon $i$ the interest rate, ...


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What determines interest rates? Let's try to understand the emergence of interest rates from first principles. We'll imagine an island inhabited only by Robinson Crusoe and Friday. For sustenance, they pick coconuts - the only food source available to them. Each coconut can either be consumed immediately or saved up for future use. One day, Crusoe does not ...


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