Principal and Interest Debt and Money Markets Exactly the same thing happens to debt.If I borrow money from the bank at an interest rate r and make no payments to the bank,then my debt increases according to the same formulas.Specifically,if my debt is compounded monthly,then after k months my debt will have grown by a factor of [1+(r/12)]k Market Interest Rates interest rates (August 9,1995) US Ireasury bills and uotes 3-month bill 339 6-month bill 539 1-year bil 536 3-year tote (yteld) 605 10-year note (yield) 649 30-year bond (9h yteld) 692 Fed funds rate 56873 Discoutit tate 526 Prime iate 875 Cominercial paper 584 Certficates of deposit I month 517 2 miouths 524 I yenr 528 Banker's ucceptunees (30 days) 568 London late Eurodollars (I tnoith) 575 Londott Interbank offered tate (I month) 588 Federnl Home Loan Mortgage Corp (Freddie Mne)(30 yeis) 794 Xi CHEN (chenxi01090bfsu.edu.cn) Investment Science 13/174Principal and Interest Debt and Money Markets Exactly the same thing happens to debt. If I borrow money from the bank at an interest rate r and make no payments to the bank, then my debt increases according to the same formulas. Specifically, if my debt is compounded monthly, then after k months my debt will have grown by a factor of [1 + (r/12)]k . Xi CHEN (chenxi0109@bfsu.edu.cn) Investment Science 13 / 174