Tham khảo tài liệu 'the four pillars of investing: lessons for building a winning portfolio_2', tài chính - ngân hàng, tài chính doanh nghiệp phục vụ nhu cầu học tập, nghiên cứu và làm việc hiệu quả | 10 The Four Pillars of Investing thinking about the price of a loan or bond. It s worth spending some time discussing this topic because it forms one of the foundations of modern finance. If you have trouble dealing with the concept of a loan which pays interest forever but never repays its principal consider the modern . 30-year Treasury bond which yields 60 semiannual payments of interest before repaying its principal. During the past 30 years inflation has averaged more than 5 per year over that period the purchasing power of the original dollar fell to less than 23 cents. In other words the purchasing power of the dollar declined by 77 . So almost all of the value of the bond is garnered from interest not principal. Extend the term of the loan to 100 years and the inflation-adjusted value of the ending principal payment is less than one cent on the dollar. The historical European government annuity is worthy of modern consideration for one compelling reason its value is extremely simple to calculate divide the annual payment by the current market interest rate. For example consider an annuity that pays 100 each year. At a 5 interest rate this annuity has a value of 2 000 100 2 000 . If you purchased an annuity when interest rates were 5 and rates then increased to 10 the value of your annuity would have fallen by half since 100 1 000. So we see that the value of a long-term bond or loan in the marketplace is inversely related to the interest rate. When rates rise the price falls when rates fall the price rises. Modern long-duration bonds are priced in nearly the same way if the bond yield rises proportionally by 1 say from to it has lost 1 of its value. The best-known early annuity was the Venetian prestiti used to finance the Republic s wars. These were forced loans extracted from the Republic s wealthiest citizens. The money was remitted to a central registry office which then paid the registered owner periodic interest. They carried a .
