Lecture 10 Chapter 5 Cont d 04 10 2014 1 The Determinants of Interest Rates a Inflation Real growth of the purchasing power of the your vs Nominal Rates growth of if put into investment b Growth in purchasing power 1 Real Rate i 1 Nominal Rate 1 Inflation Rate c Real Rate Nominal Inflation Rate 1 Inflation 2 The Determinant of Interest Rates a Yield Curve i Dynamic depending on where it is in the economy 3 The Opportunity Cost of Capital a Opportunity cost of capital Cost of capital Points to know EAR vs APR quotes Why does part of your loan cover interest change over time Nominal vs Real Interest Rate What does a yield curve show What is the opportunity cost of capital Chapter 6 1 Bond debt investment obligation o Borrowing from the market o Contractual obligation to be repaid 2 Bond Terminology o Bond o Bond certificate detail of all amounts and dates o Maturity Date time to the final repayment o Term remaining time until maturity repayment o Face Value used to compute interest payments o Coupons promised interest payments o Coupon Rate set by the issuer 3 Zero Coupon Bonds o Treasury Bills o Yield to Maturity 4 Yields for different Maturities o Risk Free Interest Rates Needed to calculate corporate bonds o Spot investment Rate 04 10 2014 04 10 2014
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