imported>Doug Williamson |
imported>Administrator |
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| | ''Economics''. |
| A rate of return - or cost of borrowing - expressed as the proportion by which the amount at the end of the period exceeds the amount at the start. | | A theory formalised by Irving Fisher, which links the level of prices with the amount of money in circulation. |
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| | It is defined as: P = MV/T, where P = price level, M = amount of money in circulation, V = velocity of circulation and T = volume of transactions. |
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| ==Example 1==
| | Monetarists believe that it is the amount of money in circulation which has the biggest effect on price levels and inflation rates. |
| GBP 1 million is borrowed or invested.
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| GBP 1.03 million is repayable at the end of the period.
| | == See also == |
| | * [[Fisher's equation]] |
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| The periodic yield (r) is:
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| r = (End amount / start amount) - 1
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| = (1.03 / 1) - 1
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| = 0.03
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| = '''3%'''
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| ==Example 2==
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| GBP 0.97 million is borrowed or invested.
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| GBP 1.00 million is repayable at the end of the period.
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| The periodic yield (r) is:
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| (End amount / start amount) - 1
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| = (1.00 / 0.97) - 1
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| = 0.030928
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| = '''3.0928%'''
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| ==Example 3==
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| GBP 0.97 million is invested.
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| The periodic yield is 3.0928%.
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| Calculate the amount repayable at the end of the period.
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| ===Solution===
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| The periodic yield (r) is defined as:
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| r = (End amount / start amount) - 1
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| Rearranging this relationship:
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| End amount = Start amount x (1 + r)
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| Substituting the given information into this relationship:
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| End amount = GBP 0.97m x (1 + 0.030928)
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| = '''GBP 1.00m'''
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| ==Example 4==
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| An investment will pay out a single amount of GBP 1.00m at its final maturity after one period.
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| The periodic yield is 3.0928%.
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| Calculate the amount invested at the start of the period.
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| ===Solution===
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| As before, the periodic yield (r) is defined as:
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| r = (End amount / start amount) - 1
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| Rearranging this relationship:
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| Start amount = End amount / (1 + r)
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| Substitute the given data into this relationship:
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| Start amount = GBP 1.00m / (1 + 0.030928)
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| = '''GBP 0.97m'''
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| Check:
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| 0.97 x 1.030928
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| = 1.00, as expected.
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| ==See also==
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| *[[Effective annual rate]]
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| *[[Discount rate]]
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| *[[Nominal annual rate]]
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| *[[Periodic discount rate]]
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| *[[Yield]]
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Economics.
A theory formalised by Irving Fisher, which links the level of prices with the amount of money in circulation.
It is defined as: P = MV/T, where P = price level, M = amount of money in circulation, V = velocity of circulation and T = volume of transactions.
Monetarists believe that it is the amount of money in circulation which has the biggest effect on price levels and inflation rates.
See also
