Mortgage Payment Per Period=PV of the Loan/ 1 1 Inom Inom (1+ m m m 1 nom )"*m P 7. (14 Points) What type of government bonds have more interest rate risk? Why? (the why is much more important) 1 1 PV= Cash payment per Period n = Inom I nom log(FV / PV) log(1+r) (1+ Inom n*m 4) m m m 1/ FV r= -1 PV n*m m 1, FV = PV * 1+ m nom Effective Annual Interest Rate nom 1+ = -1 m FV FV = PV (1+r)" PVord = Cashpaymentperperiod ( )" - con - PV = 1 1 r r(1+r)" 71 PV = FV /(1+r)" 1 1+ NOW m = = PVandue=Cashpaymentperperiod +(Cashpaymentperperiod * 1 Ir r(1+r)*1