THE GLOBECON GROUP

FINANCIAL MATH FUNDAMENTALS

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 Interest Rates

What Is An Interest Rate?

Definitions

Economist’s interpretation

Wall Street perspective

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 Interest Rates

Economists Financial Markets

Compensation for Opportunity cost of

differing consumption capital

Factor that connects

the present to the
Time value of money
future

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 Interest Rates

Interest rates, yields and rates of return compared

Meanings of the word yield

Rate of return

Interest rate

Cash flow from investment

Expression of current market value (price)

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 Bond Yields

Meanings of Yield

Rate of Return

Interest rate: numerous interest rates have the word yield in their name:
yield to maturity; yield to call; current yield; nominal yield; etc.

Cash flow paid to holder of investment: high dividend paying equities are
often purchased for their yield (dividend) while the investor can wait for
expected price gain

Expression of current value: many fixed income securities are quoted by

yield to maturity

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