Lecture 6 Classifications of Interest Rate Models. Three Classifications. Discrete vs. Continuous Single Factor vs. Multiple Factors General Equilbrium vs. Arbitrage Free. Discrete Models. Discrete models have interest rates change only at specified intervals Typical interval is monthly
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$1 million invested for 1 year at r = 5%
Accumulated value = 1 million x e.05 = 1,051,271