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Explore the mathematical foundations of bond pricing and interest rate theory in this 22-minute lecture from MIT's Topics in Mathematics with Applications in Finance course. Learn fundamental concepts including compound interest calculations, present value discounting of future cash flows, and the structural differences between zero-coupon and coupon-bearing bonds. Discover the critical inverse relationship between bond prices and yields, and examine how yield curves function as economic indicators, including their historical patterns and ability to predict economic recessions. Master essential risk management tools for fixed-income investing through detailed explanations of duration and convexity measures that quantify bond price sensitivity to interest rate changes.
