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  • 2023 Level I NotesVideo R1 Module 1

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    robert
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    The document discusses the time value of money and interpreting interest rates. It explains that equilibrium interest rates are the required rate of return for an investment and that interest rates can also be viewed as discount rates or the opportunity cost of current consumption versus delayed consumption. It also outlines that the required nominal interest rate on a security is equal to the real risk-free rate plus expected inflation plus any applicable risk premiums for default, liquidity, and maturity.

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    The document discusses the time value of money and interpreting interest rates. It explains that equilibrium interest rates are the required rate of return for an investment and that interest rates can also be viewed as discount rates or the opportunity cost of current consumption versus delayed consumption. It also outlines that the required nominal interest rate on a security is equal to the real risk-free rate plus expected inflation plus any applicable risk premiums for default, liquidity, and maturity.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    5 views2 pages

    2023 Level I NotesVideo R1 Module 1

    Uploaded by

    robert
    The document discusses the time value of money and interpreting interest rates. It explains that equilibrium interest rates are the required rate of return for an investment and that interest rates can also be viewed as discount rates or the opportunity cost of current consumption versus delayed consumption. It also outlines that the required nominal interest rate on a security is equal to the real risk-free rate plus expected inflation plus any applicable risk premiums for default, liquidity, and maturity.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    of 2

    Quantitative Methods

    The Time Value of Money

    LOS a Interpret The Time Value of Money

    Interpreting Interest Rates


    Equilibrium interest rates are the required rate of return for a
    particular investment.

    Interest rates are also referred to as discount rates.

    We can also view interest rates as the opportunity cost of current


    consumption because future consumption could be greater if delayed.

    © Kaplan, Inc. 2

    1
    LOS b Explain The Time Value of Money

    Components of Interest Rates


    Required nominal interest rate on a security =

    real risk-free rate


    Nominal risk-free rate
    + expected inflation
    + default risk premium
    + liquidity risk premium Risk premium
    + maturity risk premium

    © Kaplan, Inc. 3

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