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BOND MATH: The Theory Behind the Formulas by Donald J. Smith

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The Future: Hourly Interest Rates?

Suppose that some time in the not-so-distant future the fastest-growing financial institution in the world is Bank 24/7/52. Its success owes to pioneering use of hourly interest rates for loans and deposits. Its (add-on) rates on short-term large time deposits (>$1,000,000) are shown in Table 1.2. The APR quoted by Bank 24/7/52 assumes a 364-day year. For instance, 3.4944% is calculated as 0.0004% * 24 * 7 * 52.

To see how hourly interest rates might work, suppose a corporation makes a 52-hour, $5,000,000 time deposit at Bank 24/7/52. The redemption amount on the deposit can be calculated using an hourly version of equation 1.3. The corporation will receive $5,001,560 when the deposit matures.

TABLE 1.2 Hourly ...

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