Unformatted text preview:

Chapter 5 Cont’d1. The Determinants of Interest Ratesa. 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 Ratei. (1+Nominal Rate)/(1+Inflation Rate)c. Real Rate = (Nominal – Inflation Rate) / (1+ Inflation)2. The Determinant of Interest Ratesa. Yield Curvei. Dynamic depending on where it is in the economy3. The Opportunity Cost of Capitala. Opportunity cost of capital = Cost of capitalPoints to knowEAR vs. APR quotesWhy does part of your loan cover interest change over time?Nominal vs. Real Interest RateWhat does a yield curve show?What is the opportunity cost of capital?Chapter 61. Bond = debt investment / obligationBorrowing from the marketContractual obligation to be repaid2. Bond TerminologyBondBond certificate: detail of all amounts and datesMaturity Date: time to the final repaymentTerm: remaining time until maturity (repayment)Face Value: used to compute interest paymentsCoupons: promised interest paymentsCoupon Rate (set by the issuer)3. Zero-Coupon BondsTreasury BillsYield to Maturity4. Yields for different MaturitiesRisk Free Interest RatesNeeded to calculate corporate bondsSpot investment RateLecture 10 04/10/2014Chapter 5 Cont’d 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 Curvei. Dynamic depending on where it is in the economy3. 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 repaid2. Bond Terminologyo Bondo Bond certificate: detail of all amounts and dateso Maturity Date: time to the final repaymento Term: remaining time until maturity (repayment) o Face Value: used to compute interest paymentso Coupons: promised interest paymentso Coupon Rate (set by the issuer)3. Zero-Coupon Bonds o Treasury Billso Yield to Maturity 4. Yields for different Maturities o Risk Free Interest Rates Needed to calculate corporate bonds o Spot investment


View Full Document
Download Lecture 10
Our administrator received your request to download this document. We will send you the file to your email shortly.
Loading Unlocking...
Login

Join to view Lecture 10 and access 3M+ class-specific study document.

or
We will never post anything without your permission.
Don't have an account?
Sign Up

Join to view Lecture 10 2 2 and access 3M+ class-specific study document.

or

By creating an account you agree to our Privacy Policy and Terms Of Use

Already a member?