Question
See image 3. Suppose that interest is continuously compounded with a rate that is changing with time. Let the present time be s O and
See image
3. Suppose that interest is continuously compounded with a rate that is changing with time. Let the present time be s O and the interest rate at time s be r(s) (where s is measured in years). Suppose that (a) (b) (c) 1 r(s) 0.08 - 0.05 Draw the curve y r(s). What does the shape of the curve tell you about how interest rates are changing over time? Find the yield curve and the present value function related to r(s). If you invest 4000 euro now, how much will be in your account after 3 years?
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