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Copyright © 2005 by The McGrawHill Companies, Inc. All rights reserved. McGrawHill/Irwin
9
Interest Rates
93
Interest Rates
Our goal in this chapter is to discuss the many different
interest rates that are commonly reported in the
financial press.
We will also:
± Find out how different interest rates are calculated and quoted,
and
± Discuss theories of what determines interest rates.
94
U.S. Interest Rate History
95
Money Market Interest Rates
96
Money Market Rates, I.
Prime rate  The basic interest rate on shortterm loans
that the largest commercial banks charge to their most
creditworthy corporate customers.
Bellwether rate  Interest rate that serves as a leader
or as a leading indicator of future trends, e.g. inflation.
Federal funds rate  Interest rate that banks charge
each other for overnight loans of $1 million or more.
Discount rate  The interest rate that the Fed offers to
commercial banks for overnight reserve loans.
97
Money Market Rates, II.
Call money rate  The interest rate brokerage firms pay
for call money loans from banks. This rate is used as
the basis for customer rates on margin loans.
Commercial paper  Shortterm, unsecured debt
issued by the largest corporations.
Certificate of deposit (CD)  Largedenomination
deposits of $100,000 or more at commercial banks for a
specified term.
Banker¶s acceptance  A postdated check on which a
bank has guaranteed payment. Commonly used to
finance international trade transactions.
98
Money Market Rates, III.
London Eurodollars  Certificates of deposit
denominated in U.S. dollars at commercial banks in
London.
London Interbank Offered Rate (LIBOR)  Interest
rate that international banks charge one another for
overnight Eurodollar loans.
U.S. Treasury bill (Tbill)  A shortterm U.S.
government debt instrument issued by the U.S.
Treasury.
99
Money Market Prices and Rates
A Pure Discount Security is an interestbearing asset:
± It makes a single payment of face value at maturity.
± It makes no payments before maturity.
There are several different ways market participants
quote interest rates.
± Banker¶s Discount Basis
± Bond Equivalent Yields (BEY)
± Annual Percentage Rates (APR)
± Effective Annual Rates (EAR)
910
The Bank Discount Basis
The Bank Discount Basis is a method of quoting
interest rates on money market instruments.
± It is commonly used for Tbills and banker¶s acceptances.
The formula is:
± Note that we use 360 days in a year in this (and many other)
money market formula.
± The term ³discount yield´ here simply refers to the quoted
interest rate.
¹
º
¸
©
ª
¨
! Yield Discount x
360
Maturity to Days
1 x Value Face Price Current
911
Example: Calculating a Price
Using a Bank Discount Rate
Suppose a banker¶s acceptance that will be paid is 60
days has a face value of $1,000,000.
If the discount yield is 3%, what is the current price of
the banker¶s acceptance?
´ )
$99 ,000.
0.00  1 $1,000,000
360
60
1 $1,000,000
yield Discount
360
maturity to Days
1 alue ace Price Current
=
 =
¹
º
¸
©
ª
¨
  =
¹
º
¸
©
ª
¨
  =
03 . 0
Remember to
multiply before
you subtract.
912
Treasury Bill Quotes in
The Wall Street Journal
913
Treasury Bill Prices,
March 20, 2003
Look at Figure 9.3 for the Tbill that expires on October
9, 2003.
± It has 142 days to maturity.
± The ask discount is 1.03 (you use this to calculate the ask
price, i.e., the price you will pay for the Tbill)
± Prices are quoted for $1,000,000 face values.
´ )
0. $99 ,93 .2
0.0040 3  1 $1,000,000
3 0
142
1 $1,000,000
yield iscount
3 0
maturity to ays
1 alue Face Price bill  T urrent
=
 =
¹
º
¸
©
ª
¨
  =
¹
º
¸
©
ª
¨
  =
0103 . 0
Verify that the bid price
is $995,897.80
914
Bond Equivalent Yields
Bond Equivalent Yields (BEY) are another way to quote
an interest rate.
You can convert a bank discount yield to a bond
equivalent yield using this formula:
Note that this formula is correct only for maturities of six months or less.
Moreover, if February 29 occurs within the next 12 months, use 366 days.
yield iscount maturity to ays
yield iscount
BEY
=
915
Example I: Bond Equivalent Yield
Look at Figure 9.3 for the Tbill that expires on October
9, 2003.
± It has 142 days to maturity.
± The ask discount is 1.03.
± What is the Bond Equivalent Yield?
1.05%. about or 0.010486,
0.0103 142 360
0.0103 365
BEY
yield Discount x maturity to Days 360
yield Discount x 365
BEY
!
v
v
!
!
Remember to
multiply before
you subtract.
916
Example II: Calculating Tbill Prices
Using Bond Equivalent Yield
We can calculate a Treasury bill asked price using the asked yield,
which is a bond equivalent yield.
Look at Figure 9.3 for the Tbill that expires on October 9, 2003.
± It has 142 days to maturity.
± The ask yield is 1.05.
2. 995,931.6
1.0040 5
1,000,000
142/365 0.0105 1
1,000,000
365 aturity / to ays Yield Equivalend Bond 1
alue Face
Price Bill
=
=
 +
=
 +
=
Note: The price differs from a previous
slide by about $6 due to rounding.
917
More Ways to Quote Interest Rates
³Simple´ interest basis  Another method to quote
interest rates.
± Calculated just like annual percentage rates (APRs).
± Used for CDs.
± The bond equivalent yield on a Tbill with less than six months
to maturity is also an APR.
An APR understates the true interest rate, which is
usually called the effective annual rate (EAR).
918
Example: The BEY on a Tbill
is Really Just an APR
Earlier, using the ask discount rate, we calculated an
asking price for a 142day Tbill to be $995,937.20.
± At maturity, this Tbill will be worth $1,000,000.
± Therefore, you earn $4,062.80 of interest on an investment of
$995,937.20 over 142 days, a percentage return of 0.4079%.
± In a 365day year, there are 365/142 = 2.5704 periods of 142
days in length.
± 0.4079 times 2.5704 is 1.0484%.
This is the bond equivalent yield that we calculated
before (actually, it was 1.0486%)
But, The Wall Street Journal rounds to 2 decimal places.
919
Converting APRs to EARs
In general, if we let m be the number of periods in a
year, an APR can be converted to an EAR as follows:
EARs are sometimes called effective annual yields,
effective yields, or annualized yields.
m
m
APR
1 EAR 1
¹
º
¸
©
ª
¨
+ = +
920
Example I: What is the EAR of
this Tbill¶s BEY (aka APR)?
0.4084%. EAR the so,
1.004084
1.001587
2.5704
0.004079
1 EAR 1
m
APR
1 EAR 1
2.5704
m
!
!
!
¹
º
¸
©
ª
¨
!
¹
º
¸
©
ª
¨
!
5704 . 2
Note that when interest rates are low, the APR will be close to the EAR.
921
Example II: Converting Credit
Card APRs to EARs
Some Credit Cards quote an APR of 18%.
± 18% is used because 18 = 12 times 1.50
± That is, the monthly rate is really 1.50%.
± What is the EAR?
19.5 %. EAR the so,
1.195
1.015
12
0.18
1 EAR 1
m
APR
1 EAR 1
12
m
=
=
=
¹
º
¸
©
ª
¨
+ = +
¹
º
¸
©
ª
¨
+ = +
12
Ouch.
922
Rates and Yields on FixedIncome Securities
Fixedincome securities include longterm debt
contracts from a wide variety of issuers:
± The U.S. government,
± Real estate purchases (mortgage debt),
± Corporations, and
± Municipal governments
When issued, fixedincome securities have a maturity of
greater than one year.
When issued, money market securities have a maturity
of less than one year.
923
The Treasury Yield Curve
The Treasury yield curve is a plot of Treasury yields
against maturities.
It is fundamental to bond market analysis, because it
represents the interest rates for defaultfree lending
across the maturity spectrum.
924
Example: The Treasury Yield Curve
925
Yield Comparisons
926
The Term Structure of Interest Rates, I.
The term structure of interest rates is the relationship
between time to maturity and the interest rates for
defaultfree, pure discount instruments.
The term structure is sometimes called the ³zero
coupon yield curve´ to distinguish it from the Treasury
yield curve, which is based on coupon bonds.
927
The Term Structure of Interest Rates, II.
The term structure can be seen by examining yields on
U.S. Treasury STRIPS.
STRIPS are pure discount instruments created by
³stripping´ the coupons and principal payments of U.S.
Treasury notes and bonds into separate parts,which are
then sold separately.
The term STRIPS stands for Separate Trading of
Registered Interest and Principal of Securities.
928
U.S. Treasury STRIPS
An asked yield for a U.S. Treasury STRIP is an APR,
calculated as two times the true semiannual rate.
Recall:
Therefore, for STRIPS:
´ ) r
alue uture
alue Present
+
=
´ )
2M
2
YTM
Value ace
Price STRIPS
+
=
M is the number of years to maturity.
929
U.S. Treasury STRIPS
930
Example: Pricing U.S. Treasury STRIPS, I.
Let¶s verify the price of the May 2013 Strip.
± The ask quote is 68:24, or $68.75.
± The ask YTM is 3.79%.
± Matures in about 10 years from the time of the quote
± Close.
´ ) ´ )
´ )
$68.70.
1.4556
100
2
0.0379
1
100
2
0.0379
1
100
2
YTM
1
Value Face
Price STRIPS
10 2
10 2 2M
! !
!
!
!
v
v
931
Example: Pricing U.S. Treasury STRIPS, II.
Let¶s calculate the YTM from the quoted price.
Close again.
´ ) . J 3. . or . 3 3, 1 1.
1
.
1
1
Price STRIPS
alue ace
YTM
.
1
1
M
1
=  =
¦
¦
¦
¦
¹
º
¸
©
ª
¨
 =
¦
¦
¦
¦
¦
¹
¹
º
¸
©
©
ª
¨
 =

932
Nominal versus Real Interest Rates
Nominal interest rates are interest rates as they are
observed and quoted, with no adjustment for inflation.
Real interest rates are adjusted for inflation effects.
Real interest rate = nominal interest rate ± inflation rate
933
Real Tbill Rates
934
Nominal versus Real Interest Rates
The Fisher Hypothesis asserts that the general level
of nominal interest rates follows the general level of
inflation.
According to the Fisher hypothesis, interest rates are,
on average, higher than the rate of inflation.
935
Inflation Rates and Tbill Rates
936
Traditional Theories of the Term Structure
Expectations Theory: The term structure of interest
rates reflects financial market beliefs about future
interest rates.
Market Segmentation Theory: Debt markets are
segmented by maturity, so interest rates for various
maturities are determined separately in each segment.
Maturity Preference Theory: Longterm interest rates
contain a maturity premium necessary to induce
lenders into making longer term loans.
937
Problems with Traditional Theories
Expectations Theory
± The term structure is almost always upward sloping, but
interest rates have not always risen.
± It is often the case that the term structure turns down at very
long maturities.
Maturity Preference Theory
± The U.S. government borrows much more heavily shortterm
than longterm.
± Many of the biggest buyers of fixedincome securities, such as
pension funds, have a strong preference for long maturities.
938
Problems with Traditional Theories
Market Segmentation Theory
± The U.S. government borrows at all maturities.
± Many institutional investors, such as mutual funds, are more
than willing to move maturities to obtain more favorable rates.
± There are bond trading operations that exist just to exploit
perceived premiums, even very small ones.
939
Modern Term Structure Theory, I.
Longterm bond prices are much more sensitive to
interest rate changes than shortterm bonds. This is
called interest rate risk.
So, the modern view of the term structure suggests
that:
NI = RI + IP + RP
In this equation:
NI = Nominal interest rate
RI = Real interest rate
IP = Inflation premium
RP = Interest rate risk premium
940
Modern Term Structure Theory, II.
The previous equation showed the component of
interest rates on defaultfree bonds that trade in a liquid
market.
Not all bonds do.
Therefore, a liquidity premium (LP) and a default
premium (DP) must be added to the previous equation:
NI = RI + IP + RP + LP + DP
941
Useful Internet Sites
www.moneyrates.com (latest money market rates)
www.bba.org.uk (learn more about LIBOR)
www.govpx.com (price and yield data for U.S.
Treasuries)
www.bondmarkets.com (fixed income securities)
www.bloomberg.com (current U.S. Treasury rates)
www.smartmoney.com/bonds (view a ³living yield
curve´ *exceptional*)
www.publicdebt.treas.gov (information on STRIPS, and
other U.S. debt)
942
Chapter Review, I.
Interest Rate History and Money Market Rates
± Interest Rate History
± Money Market Rates
Money Market Prices and Rates
± Bank Discount Rate Quotes
± Treasury Bill Quotes
± Bank Discount Yields versus Bond Equivalent Yields
± Bond Equivalent Yields, APRs, and EARs
943
Chapter Review, II.
Rates and Yields on FixedIncome Securities
± The Treasury Yield Curve
± Rates on Other FixedIncome Investments
The Term Structure of Interest Rates
± Treasury STRIPS
± Yields for U.S. Treasury STRIPS
Nominal versus Real Interest Rates
± Real Interest Rates
± The Fisher Hypothesis
944
Chapter Review, III.
Traditional Theories of the Term Structure
± Expectations Theory
± Maturity Preference Theory
± Market Segmentation Theory
Determinants of Nominal Interest Rates: A Modern
Perspective
± Problems with Traditional Theories
± Modern Term Structure Theory
± Liquidity and Default Risk
9
Interest Rates
McGrawHill/Irwin
Copyright © 2005 by The McGrawHill Companies, Inc. All rights reserved.
Interest Rates
Our goal in this chapter is to discuss the many different interest rates that are commonly reported in the financial press. We will also:
± Find out how different interest rates are calculated and quoted, and ± Discuss theories of what determines interest rates.
93
U.S. Interest Rate History
94
Money Market Interest Rates 95 .
e. I. Federal funds rate . Discount rate .Money Market Rates. Prime rate .Interest rate that serves as a leader or as a leading indicator of future trends. Bellwether rate .The interest rate that the Fed offers to commercial banks for overnight reserve loans.The basic interest rate on shortterm loans that the largest commercial banks charge to their most creditworthy corporate customers. inflation.Interest rate that banks charge each other for overnight loans of $1 million or more.g. 96 .
Shortterm. Call money rate .The interest rate brokerage firms pay for call money loans from banks. II. Certificate of deposit (CD) .A postdated check on which a bank has guaranteed payment.000 or more at commercial banks for a specified term.Largedenomination deposits of $100. This rate is used as the basis for customer rates on margin loans. Commonly used to finance international trade transactions. Commercial paper . 97 . unsecured debt issued by the largest corporations. Banker¶s acceptance .Money Market Rates.
Money Market Rates. III.Interest rate that international banks charge one another for overnight Eurodollar loans. Treasury bill (Tbill) .S. government debt instrument issued by the U.S. London Eurodollars . Treasury.S.A shortterm U. U. 98 .Certificates of deposit denominated in U. London Interbank Offered Rate (LIBOR) . dollars at commercial banks in London.S.
There are several different ways market participants quote interest rates. ± ± ± ± Banker¶s Discount Basis Bond Equivalent Yields (BEY) Annual Percentage Rates (APR) Effective Annual Rates (EAR) 99 .Money Market Prices and Rates A Pure Discount Security is an interestbearing asset: ± It makes a single payment of face value at maturity. ± It makes no payments before maturity.
± The term ³discount yield´ here simply refers to the quoted interest rate.The Bank Discount Basis The Bank Discount Basis is a method of quoting interest rates on money market instruments. 910 . The formula is: ¨ Days to Maturity ¸ Current Price ! Face Value x © 1 x Discount Yield ¹ 360 ª º ± Note that we use 360 days in a year in this (and many other) money market formula. ± It is commonly used for Tbills and banker¶s acceptances.
000. If the discount yield is 3%.000.000.03 ¹ ª 360 º 1 ! $1.000 v ©1 v 0.Example: Calculating a Price Using a Bank Discount Rate Suppose a banker¶s acceptance that will be paid is 60 days has a face value of $1. what is the current price of the banker¶s acceptance? ¨ Days to maturity ¸ Current Price ! ace alue v ©1 v Discount yield ¹ 360 ª º 60 ¨ ¸ ! $1.000.000 v .
911 .000. .00 ! $99 . Remember to multiply before you subtract.0.
Treasury Bill Quotes in The Wall Street Journal 912 .
000 v ©1 v 0.e.3 for the Tbill that expires on October 9.Treasury Bill Prices. 2003. ± The ask discount is 1. March 20.000 v .000.000.0103 ¹ ª 3 0 º 1 ! $1.000 face values.03 (you use this to calculate the ask price. 2003 Look at Figure 9. ays to maturity ¨ urrent T .bill Price ! Face alue v ©1 v 3 0 ª ¨ 142 ¸ ! $1. ± It has 142 days to maturity. the price you will pay for the Tbill) ± Prices are quoted for $1..000. i.
0040 3 ! $99 .897.2 0. Verify that the bid price is $995.93 .0.80 913 ¸ iscount yield ¹ º . .
Bond Equivalent Yields Bond Equivalent Yields (BEY) are another way to quote an interest rate. 914 . You can convert a bank discount yield to a bond equivalent yield using this formula: BEY ! iscount ays to maturity yield iscount yield Note that this formula is correct only for maturities of six months or less. use 366 days. Moreover. if February 29 occurs within the next 12 months.
± What is the Bond Equivalent Yield? 365 x Discount yield BEY ! 360 Days to maturity x Discount yield 365 v 0.03.Example I: Bond Equivalent Yield Look at Figure 9.0103 360 142 v 0. or about 1. 2003.010486.3 for the Tbill that expires on October 9. ± It has 142 days to maturity. ± The ask discount is 1.0103 BEY ! Remember to multiply before you subtract. ! 0.05%. 915 .
916 .931. Look at Figure 9.0105 v 142/365 1. which is a bond equivalent yield.3 for the Tbill that expires on October 9.000 1 0.0040 5 aturity / 365 ! ! ! 995. ± It has 142 days to maturity. Bill Price ! Face alue 1 Bond Equivalend Yield v ays to 1.6 2.Example II: Calculating Tbill Prices Using Bond Equivalent Yield We can calculate a Treasury bill asked price using the asked yield. ± The ask yield is 1.000. Note: The price differs from a previous slide by about $6 due to rounding. 2003.000 1.000.05.
± The bond equivalent yield on a Tbill with less than six months to maturity is also an APR.Another method to quote interest rates. 917 . An APR understates the true interest rate.More Ways to Quote Interest Rates ³Simple´ interest basis . which is usually called the effective annual rate (EAR). ± Calculated just like annual percentage rates (APRs). ± Used for CDs.
± Therefore. The Wall Street Journal rounds to 2 decimal places. This is the bond equivalent yield that we calculated before (actually.80 of interest on an investment of $995.000. this Tbill will be worth $1.20.937. it was 1. ± In a 365day year.5704 periods of 142 days in length.20 over 142 days. using the ask discount rate. ± 0. we calculated an asking price for a 142day Tbill to be $995.5704 is 1.4079 times 2.000.062.Example: The BEY on a Tbill is Really Just an APR Earlier.937.0486%) But. you earn $4. ± At maturity.4079%.0484%. there are 365/142 = 2. a percentage return of 0. 918 .
919 .Converting APRs to EARs In general. effective yields. an APR can be converted to an EAR as follows: ¨ APR ¸ 1 EAR ! ©1 ¹ m º ª m EARs are sometimes called effective annual yields. if we let m be the number of periods in a year. or annualized yields.
4084%.Example I: What is the EAR of this Tbill¶s BEY (aka APR)? ¨ APR ¸ 1 EAR ! © 1 ¹ m º ª m 0.001587 ! 1.004084 so. the EAR ! 0.5704 Note that when interest rates are low. 920 .5704 º ª ! 1. 2.5704 2 . the APR will be close to the EAR.004079 ¸ ¨ 1 EAR ! © 1 ¹ 2.
Example II: Converting Credit Card APRs to EARs Some Credit Cards quote an APR of 18%. Ouch. the EAR ! 19. ± What is the EAR? m APR ¸ ¨ 1 EAR ! © 1 ¹ m º ª 0.50%.5 %. ± 18% is used because 18 = 12 times 1.015 ! 1. 921 . the monthly rate is really 1.18 ¸ ¨ 1 EAR ! © 1 ¹ 12 º ª ! 1.195 12 12 so.50 ± That is.
money market securities have a maturity of less than one year. When issued.Rates and Yields on FixedIncome Securities Fixedincome securities include longterm debt contracts from a wide variety of issuers: ± ± ± ± The U. and Municipal governments When issued. Real estate purchases (mortgage debt). government. Corporations. fixedincome securities have a maturity of greater than one year.S. 922 .
The Treasury Yield Curve The Treasury yield curve is a plot of Treasury yields against maturities. 923 . because it represents the interest rates for defaultfree lending across the maturity spectrum. It is fundamental to bond market analysis.
Example: The Treasury Yield Curve 924 .
Yield Comparisons 925 .
I. pure discount instruments. 926 . which is based on coupon bonds. The term structure of interest rates is the relationship between time to maturity and the interest rates for defaultfree. The term structure is sometimes called the ³zero coupon yield curve´ to distinguish it from the Treasury yield curve.The Term Structure of Interest Rates.
II. The term structure can be seen by examining yields on U. Treasury notes and bonds into separate parts. STRIPS are pure discount instruments created by ³stripping´ the coupons and principal payments of U.S. 927 .The Term Structure of Interest Rates. The term STRIPS stands for Separate Trading of Registered Interest and Principal of Securities. Treasury STRIPS.S.which are then sold separately.
Recall: Present alue ! uture alue .S.U. calculated as two times the true semiannual rate.S. Treasury STRIPS An asked yield for a U. Treasury STRIP is an APR.
r Therefore. 928 . for STRIPS: STRIPS Price ! M is the number of years to maturity.
ace Value YTM 2 2M .
Treasury STRIPS 929 .U.S.
75. ± Matures in about 10 years from the time of the quote STRIPS Price ! .S. or $68. ± The ask quote is 68:24. Let¶s verify the price of the May 2013 Strip. I. Treasury STRIPS.Example: Pricing U. ± The ask YTM is 3.79%.
Face Value 1 YTM 2 2M ! .
! 100 2 1 0.0379 2v10 ! .
930 . 100 2 1 0.0379 2v10 100 ! $68.4556 ± Close. 1.70.
Let¶s calculate the YTM from the quoted price.S.Example: Pricing U. Treasury STRIPS. II. « ¬¨ ace alue ¸ YTM ! v © ¹ © STRIPS Price ¹ ¬ª º ¬ ! v.
. 1 M » « ¼ ! v ¬¨ 1 1 © ¼ ¬ª . 3 A 3. or 3. Close again. ¼ ½ ¸ ¹ º 1 v1 » 1¼ ¼ ½ ? . 931 . 1 ! . 1.
Real interest rates are adjusted for inflation effects. Real interest rate = nominal interest rate ± inflation rate 932 .Nominal versus Real Interest Rates Nominal interest rates are interest rates as they are observed and quoted. with no adjustment for inflation.
Real Tbill Rates 933 .
Nominal versus Real Interest Rates The Fisher Hypothesis asserts that the general level of nominal interest rates follows the general level of inflation. on average. interest rates are. 934 . higher than the rate of inflation. According to the Fisher hypothesis.
Inflation Rates and Tbill Rates 935 .
Maturity Preference Theory: Longterm interest rates contain a maturity premium necessary to induce lenders into making longer term loans. Market Segmentation Theory: Debt markets are segmented by maturity. so interest rates for various maturities are determined separately in each segment. 936 .Traditional Theories of the Term Structure Expectations Theory: The term structure of interest rates reflects financial market beliefs about future interest rates.
± Many of the biggest buyers of fixedincome securities. Maturity Preference Theory ± The U. 937 . but interest rates have not always risen. such as pension funds. have a strong preference for long maturities. government borrows much more heavily shortterm than longterm.S.Problems with Traditional Theories Expectations Theory ± The term structure is almost always upward sloping. ± It is often the case that the term structure turns down at very long maturities.
± There are bond trading operations that exist just to exploit perceived premiums. such as mutual funds. government borrows at all maturities. even very small ones. ± Many institutional investors.Problems with Traditional Theories Market Segmentation Theory ± The U. 938 . are more than willing to move maturities to obtain more favorable rates.S.
Modern Term Structure Theory. the modern view of the term structure suggests that: NI = RI + IP + RP In this equation: NI = Nominal interest rate RI = Real interest rate IP = Inflation premium RP = Interest rate risk premium 939 . This is called interest rate risk. So. I. Longterm bond prices are much more sensitive to interest rate changes than shortterm bonds.
a liquidity premium (LP) and a default premium (DP) must be added to the previous equation: NI = RI + IP + RP + LP + DP 940 . Not all bonds do. Therefore. II.Modern Term Structure Theory. The previous equation showed the component of interest rates on defaultfree bonds that trade in a liquid market.
bloomberg.S.com (fixed income securities) www.uk (learn more about LIBOR) www.com (latest money market rates) www.treas.com (current U.Useful Internet Sites www.com (price and yield data for U.govpx.com/bonds (view a ³living yield curve´ *exceptional*) www.org.moneyrates.bba. and other U.bondmarkets.S. debt) 941 .smartmoney.publicdebt. Treasury rates) www. Treasuries) www.gov (information on STRIPS.S.
I. and EARs 942 . Interest Rate History and Money Market Rates ± Interest Rate History ± Money Market Rates Money Market Prices and Rates ± ± ± ± Bank Discount Rate Quotes Treasury Bill Quotes Bank Discount Yields versus Bond Equivalent Yields Bond Equivalent Yields.Chapter Review. APRs.
S. II. Treasury STRIPS Nominal versus Real Interest Rates ± Real Interest Rates ± The Fisher Hypothesis 943 .Chapter Review. Rates and Yields on FixedIncome Securities ± The Treasury Yield Curve ± Rates on Other FixedIncome Investments The Term Structure of Interest Rates ± Treasury STRIPS ± Yields for U.
Traditional Theories of the Term Structure ± Expectations Theory ± Maturity Preference Theory ± Market Segmentation Theory Determinants of Nominal Interest Rates: A Modern Perspective ± Problems with Traditional Theories ± Modern Term Structure Theory ± Liquidity and Default Risk 944 . III.Chapter Review.
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