Interest Rate Risk. Money Market Interest Rates in HK & US. HK Interest Rates. Two factors determine short-term interest rates in Hong Kong US Monetary Policy Market Expectations about exchange rates. If market expects a devaluation there will be high HK interest rates
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Equivalently, the price is the present value of the face or par value.
The price is equal to
EX. T = 2,
A way to measure the maturity structure of an income stream is to calculate what percentage of the present value of an income stream comes from different maturity dates
To sum up this measure, calculate a weighted sum of the years until final maturity using these percentages as weights.
This measure is called DURATION of the income stream.
Duration also measures the sensitivity of the income stream to changes in the interest rate.
NWMV = APV – LPV